CFPB Investigates Unverified Information in Tenant Background Checks

When applying for housing, not every check is financial. Many housing companies and landlords across the country can and do require a background check as part of the application process, along with the traditional credit check. 

On its face, this system seems reasonable, but according to a new report from the Consumer Financial Protection Bureau (CFPB), the background checks which are marketed to landlords as having valuable tenant background information, are more often than not filled with largely unvalidated information not usable to make any prediction on the applicant. 

Renters, more often than not, get the short end of the stick through higher rents and possible application denials because of these inaccuracies and false information included in some of these reports. 

Knowing this, the CFPB analyzed more than 24,000 consumer complaints on background checks, and the industry’s failures to remove wrong, old, or misleading information and to provide adequate investigations of any disputed errors. 

“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. 

As outlined in the 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.