The CFPB recently released two reports concerning tenant background checks. One report, “Consumer Snapshot: Tenant Background Checks,” discusses consumer complaints received by the CFPB that relate to tenant screening by landlords. The other report, “Tenant Background Checks Market,” looks at the practices of the tenant screening industry.
Consumer Snapshot. The report describes the tenant screening process faced by rental applicants. It highlights the following common issues reported in complaints:
- Negative information that does not belong to the consumer, which the report attributes to the use of “name-only” matching and “wildcard” (i.e. partial name) searches by tenant screening companies;
- Inaccurate or misleading information about evictions and rental debt, with the CFPB noting that based on applicants’ experiences, the presence of eviction records, regardless of accuracy and outcome, has a high likelihood of leading to denials of rental housing; and
- Errors in criminal record information, with the CFPB noting that inaccuracies in criminal records may have an outsized impact on Native American, Black, and Hispanic communities because of their disproportionate representation in the criminal justice system and despite known issues with inconsistent public records systems across jurisdictions, many tenant screening companies conduct minimal manual verification of information and continue to report inaccurate and incomplete civil and criminal public records.
The CFPB states that “[t]he issues described in CFPB complaints and qualitative research suggest that some tenant screening companies are not meeting the legal requirement under the FCRA ‘to follow reasonable procedures to assure maximum possible accuracy’ of the information in the reports they compile.” In discussing the challenges faced by applicants in addressing errors, the CFPB highlights the use of proprietary scoring models or algorithms by tenant screening companies to classify a renter as more or less risky. The CFPB reports that complaints and interviews showed a lack of consistent compliance with FCRA adverse action notice requirements by landlords who took adverse action based on tenant screening reports and with FCRA dispute requirements by tenant screening companies. It concludes the report with the statement that “[t]he experiences documented in this report illustrate that tenant screening reports are an increasing area of concern for many across the country.”
Market Report. The CFPB’s industry research used for the report focused on publicly available information from a sample of 17 tenant screening companies that offer services to landlords across the country. These companies were selected based on their perceived prevalence in sources such as: public-facing websites, analyses by industry observers, academic research, consumer complaints submitted to the CFPB, and recent lawsuits. The CFPB estimates that a majority of landlords use tenant screening reports when considering rental applicants.
The report contains a description of the rental housing landscape, an overview of the tenant screening industry, a description of the features of tenant screening reports, and a discussion of the federal, state, and local laws that apply to the creation and use of tenant screening reports. It also contains a section entitled “Market Challenges” in which the CFPB discusses the following issues that “have the potential to create or reinforce market distortions and harms for landlords and renters”:
- Many tenant screening companies appear to over-include criminal and eviction court records as a result of automated matching procedures, including “wildcard” matching, that lead to erroneous matches. With respect to eviction records, some tenant screening companies and their data vendors appear to lack adequate procedures to account for the complexities of and errors inherent in such records. With respect to criminal records, the CFPB found many instances where tenant screening reports appeared to include obsolete non-conviction criminal records or incomplete arrest record information and also found that tenant screening companies and their data brokers may also fail to have procedures to remove criminal records that were expunged or sealed. As to both eviction and criminal records, the CFPB raises questions about the value of such records in predicting tenant behavior and discusses emerging trends by state and local jurisdictions to limit access to eviction records and restrict the use of criminal history information inn rental decisions.
- The CFPB also questions the relevance of credit report information and credit scores, which are often included in tenant screenings reports, as a predictor of an applicant’s likelihood to pay rent and be a responsible tenant. The CFPB cites research suggesting that renters may be more likely to prioritize rental payments over the payment of other debts. According to the CFPB, this calls into question the strength of the relationship between an applicant’s credit profile and the likelihood the applicant will pay rent. The CFPB reports that some local governments limit the use of certain credit reporting information, including credit scores, in rental decisions.
- The CFPB reports that in addition to credit scores, many tenant screening companies offer a customized rental risk score or a decision recommendation such as “accept,” “reject,” or “accept with conditions.” Some tenant screening companies allow landlords to specify the criteria most important to them (e.g. income, employment, criminal history) and the report generates a recommendation on that basis. Other companies create overall risk scores based on their own proprietary models. The CFPB, contrasting such models with “documented model risk management in the financial services space,” indicates that it is unaware of objective validation of such models or detailed descriptions of the specific variables or weights used in a given model. The CFPB also observes that algorithmic screening and automated scoring can obfuscate the underlying reasons for adverse decisions on rental applications and create risks for landlords, such as not being able to provide enough information to allow applicants to challenge the results or correct inaccurate information and allegations of Fair Housing Act violations and other threats of civil litigation.
The CFPB concludes the report with a list of future actions it plans to take regarding the tenant screening market. In addition to additional monitoring and research, the CFPB plans to:
- Identify guidance or rules it can issue to ensure legal compliance by the “background screening” industry;
- Determine how to require the “background screening” industry to develop and maintain appropriate and accurate consumer reporting practices in accordance with applicable law;
- Coordinate enforcement with the FTC to hold tenant screening companies accountable for having reasonable procedures to assure accurate information in their reports; and
- Coordinate with federal and local government agencies to ensure tenants receive timely information about potential inaccuracies and adequate adverse action notices.