That is because they do not think they will qualify. collecting app fees is becoming standard in many markets. For one, it cuts down on the amount of people who apply who know that they will not qualify. It also establishes that you are going to run the credit and criminal background checks, not just say you are... I hold off on actually running them through until I do my own due diligence on the application and verify the things that I can for free. It's amazing how many people lie on an application!
What ever service you use, make sure they do a full credit and criminal background check. It is the best way to weed out troublemakers. I have had some people balk at the app fee. I just explained that it helps keep away the undesirables from my building. Then I ask if they want to live in a place with someone who has been in and out of jail or who has multiple noise complaints files against them. The application process is as much to protect my existing tenants as it is my own property.
FYI, most of the inspections only want to see that you have a lock-box or locking file cabinet to keep tenants information secured in. I just keep everything in my safe.