CFPB Highlights Accuracy Issues in Two Tenant Background Check Reports | Ballard Spahr LLP

The CFPB recently released two reports on tenant background checks. A report, “Consumer Snapshot: Tenant Background Checks‘ discusses consumer complaints received by the CFPB relating to tenant screening by landlords. The other report: “Tenant Background Check Market‘, addresses the practices of the tenant screening industry.

Consumer Snapshot. The report describes the tenant screening process that tenant applicants are subjected to. It highlights the following common issues reported in complaints:

  • Negative non-consumer information that the report attributes to tenant screening companies’ use of “name-only” matching and “wildcard” (ie, partial name) searches;
  • Inaccurate or misleading information about evictions and rent arrears, with the CFPB noting that the presence of eviction records, regardless of accuracy or outcome, is highly likely to result in denial of rental housing based on applicants’ experiences; and
  • Errors in Criminal Records Information, with the CFPB noting that inaccuracies in criminal records can have an outsized impact on Native American, Black and Hispanic communities due to their disproportionate representation in the criminal justice system and despite known issues with inconsistent public record systems in all jurisdictions, many tenant verification firms maintain a minimal manual reviewing the information and continue to report inaccurate and incomplete civil and criminal records.

The CFPB states that “[t]The issues detailed in CFPB complaints and qualitative research suggest that some tenant screening companies are failing to meet the FCRA’s legal requirements to “follow reasonable procedures to ensure the greatest possible accuracy” of the information in the reports they produce .” In discussing the challenges that applicants face when fixing errors, the CFPB highlights the use of proprietary scoring models or algorithms by tenant screening companies to rank a tenant as more or less risky. The CFPB reports that complaints and interviews showed that landlords who took adverse action based on tenant screening reports met FCRA requirements for notification of adverse action and FCRA requirements for tenant screening disputes. companies did not consistently comply. She concludes the report by stating that “[t]The experiences documented in this report show that tenant screening reports are a growing concern for many across the country.”

market report. The CFPB industry research used for the report focused on publicly available information from a sample of 17 tenant verification firms that provide services to landlords across the country. These companies were selected based on their perceived prevalence in sources such as public-facing websites, analysis by industry observers, academic research, consumer complaints filed with the CFPB, and recent court cases. The CFPB estimates that a majority of landlords use tenant screening reports when considering tenant applicants.

The report includes a description of the rental housing landscape, an overview of the tenant screening industry, a description of the characteristics of tenant screening reports, and a discussion of the federal, state, and local laws governing the creation and use of tenant screening reports. It also includes a section titled “Market Challenges” in which the CFPB discusses the following issues that “have the potential to create or increase market distortions and harm to landlords and tenants”:

  • Many tenant screening companies appear to over-complicate criminal and eviction court records as a result of automated matching processes, including “wildcard” matching, that result in erroneous matching. With regard to eviction records, some tenant verification firms and their data providers appear to lack adequate procedures to address the complexity and errors inherent in such records. Regarding criminal records, the CFPB found many instances where tenant screening reports appeared to contain outdated criminal records with no conviction or incomplete detention record information, and also found that tenant screening companies and their data brokers may also lack procedures for removal of criminal records that have been erased or sealed. With respect 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 the use of criminal record information in tenancy decisions.
  • The CFPB also questions the relevance of credit report and credit score information, often included in tenant screening reports, as a predictor of an applicant’s likelihood of paying rent and being a responsible tenant. The CFPB cites research that suggests tenants are more likely to prioritize paying rent over paying other debts. According to the CFPB, this questions the strength of the relationship between an applicant’s credit profile and the likelihood that the applicant will pay rent. The CFPB reports that some local governments are restricting the use of certain credit report information, including credit scores, in rental decisions.
  • The CFPB reports that in addition to credit scores, many tenant screening companies offer an individual rent risk score or 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 record) and the report makes a recommendation based on that. Other companies create overall risk assessments based on their own proprietary models. The CFPB, which contrasts such models with “documented model risk management in financial services,” notes that it is unaware of the objective validation of such models or detailed descriptions of the specific variables or weights used in a particular model. The CFPB also notes that algorithmic screening and automated scoring can obscure the underlying reasons behind negative decisions on rental applications and create risks for landlords, such as 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 in relation to the tenant screening market. In addition to additional monitoring and research, the CFPB plans to:

  • Identify guidelines or rules it may enact to ensure regulatory compliance by the “background checking” industry;
  • Determine how the background screening industry may be required to develop and maintain reasonable and accurate consumer reporting procedures in accordance with applicable law;
  • Coordinate enforcement with the FTC to hold tenant verification firms accountable for having adequate procedures to ensure accurate information in their reports; and
  • Coordinate with federal and local government agencies to ensure tenants receive timely information of potential inaccuracies and appropriate notifications of adverse action.

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