CFPB Finds Problem with Tenant Background Checks

The nation’s consumer bureau says it has received 24K complaints from renters, and alleges that some tenant background checks are “riddled with errors.”

WASHINGTON – The U.S. Consumer Financial Protection Bureau (CFPB) issued two reports on the tenant background check industry, saying they show how background-check errors contribute to higher costs and barriers to quality rental housing.

CFPB says the reports are based on more than 24,000 renter complaints that highlight challenges associated with failures to remove wrong, old or misleading information, and to adequately investigate 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,” says 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 with the Federal Trade Commission (FTC) in overseeing the tenant screening industry.

“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,” says Samuel Levine, director of FTC’s Bureau of Consumer Protection.

Problems CFPB cites in the reports

  • Tenant background content has questionable relevance, particularly given a lack of rental payment history. Prior rental payment history is overwhelmingly not reflected in the reports or algorithmic risk scores assigned to tenants.
  • The demand for digital, algorithmic tenant-scoring has increased. Centralized databases 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 don’t see them, and they struggle to get errors fixed. A reported 68% of renters pay application fees when applying for rental housing, often used to pay for tenant background check reports. But renters often have little to no visibility of the information the reports 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 erroneous data sent to landlords. The tenant scores make decision-making easy, but the social scores can hide data errors and magnify the negative impact of erroneous or outdated information.
  • Renters often don’t receive adverse action notices, a legal right for renters: Many landlords don’t 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.

CFPB tenant reports

Last year, CFPB issued an advisory opinion regarding false identifications in background screening saying that the practice of matching consumer records solely through the matching of names is illegal under the Fair Credit Reporting Act.

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