Today, the Consumer Financial Protection Bureau (CFPB) issued two reports on the tenant background check industry. The reports describe how errors in these background checks contribute to higher costs and barriers to quality rental housing. Too often, these background checks – which purport to contain valuable tenant background information – are filled with largely unvalidated information of uncertain accuracy or predictive value. While renters bear the costs of errors and false information in these reports, they have few avenues to make tenant screening companies fix their sloppy procedures. The CFPB’s analysis of more than 24,000 complaints highlighted the renter challenges associated with the industry’s failures to remove wrong, old, or misleading information and to provide adequate investigations of disputed information.
“When a company produces a tenant background check report that is riddled with errors, it can cause serious harm to a family seeking housing,” said CFPB Director Rohit Chopra. “These background reports are heavily used by corporate landlords that own an increasing share of rental housing in our country, so we are taking steps to ensure these reports do not contain false information.”
The CFPB works closely with the Federal Trade Commission (FTC) to hold the tenant screening industry accountable. “FTC enforcement investigations have identified serious problems with tenant background check reports. We will continue to work with the CFPB to ensure that firms compiling these reports are following the law,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection.
The tenant background check industry creates reports that include extensive personal information, such as credit history, civil and criminal records, and credit scores, as well as the proprietary risk scores on which many landlords and property management companies base their decision to rent to a prospective tenant. The CFPB’s report on the state of the tenant screening market is an analysis of industry research, legal cases, academic research, the CFPB’s market monitoring, and other third-party sources. The CFPB’s consumer snapshot analyzes more than 24,000 complaints and results from focus groups with 44 renters.
Both reports reveal that people are denied rental housing because negative information is reported that belongs to someone else; outdated information remains on reports; and inaccurate or misleading details about arrests, criminal records, and eviction records are not corrected nor removed from reports. The consumer snapshot reveals that renters submitted more than 16,000 complaints about incorrect information on their reports and another 4,500 complaints about obstacles faced trying to get companies to fix their errors.
As described in the two reports:
Tenant background check content for landlords has questionable relevance, particularly given the lack of rental payment history: Prior rental payment history is overwhelmingly not reflected in the reports or algorithmic risk scores assigned to tenants. Industry estimates of the coverage of rental payment history in the consumer reporting system range between 1.7% to 2.3% of U.S. renters.
As corporate landlords have increased their rental holdings, the demand for digital, algorithmic scoring of prospective tenants has increased: The automated property management systems with centralized databases relied on by corporate landlords and private equity firms substitute a single algorithmic score for the more nuanced and holistic evaluation of prospective tenants done historically by smaller landlords and property managers.
Renters pay for the reports, but often do not see them, and struggle to get errors fixed: A reported 68% of renters pay application fees when applying for rental housing. These fees are often used to pay the cost of tenant background check reports. But renters often have little to no visibility into the information they contain prior to a rental decision being made, and they have little recourse when the information is wrong, misleading, or old. Renters who attempted to correct their reports found they could not get them corrected, and even had the same bad information show up on future tenant background check reports.
Market dysfunctions result in companies selling erroneous data to landlords: Tenant screening companies appear inclined to include negative information on a report even if that information might be inaccurate. The tenant scores produced for landlords make decision-making easy, but the social scores can hide data errors and magnify the negative impact of erroneous and outdated information.
Renters often do not receive adverse action notices, a legal right for renters: Many landlords do not consistently inform prospective tenants of their right to dispute information in reports or provide them the information necessary to do so, as required by the Fair Credit Reporting Act. Without these notices, renters may remain unaware that a version of their tenant background check report was pulled and unable to address any errors on the report.
Ultimately, the reporting of inaccurate negative information can contribute to difficulty finding affordable, quality housing, and result in people living farther from school or work, paying more in rent and fees, and undermining household financial stability.