Resident screening is a topic at the forefront of the rental housing market. The White House Blueprint for a Renters Bill of Rights, released in January 2023, names it as a primary component in addressing housing discrimination and exclusion. Previous U.S. Department of Housing and Urban and Development (HUD) guidance and additional implementation guidance addressed the standards of use for criminal screening, asserting the potential for disparate impact Fair Housing Act (FHA) claims. In November 2022, the Consumer Financial Protection Bureau (CFPB) released reports on the background check market and consumer complaints. These pieces serve as follow-up to the CFPB’s 2021 advisory report, and detail accuracy of reporting in compliance with the Fair Credit Reporting Act (FCRA). Both FHA and FCRA claims are the subject of many resident screening lawsuits. Most recently, on February 28, 2023, the Federal Trade Commission (FTC) and the CFPB began an open comment period regarding resident screening. A closer look at FHA and FCRA rules and case law provides a better understanding of current regulations on this issue.
Fair Housing Act
The FHA prohibits the refusal to sell, rent or discriminate against any person based upon their race, color, religion, sex, familial status or national origin. This protection traditionally relied on intentional discrimination of a protected class. Today, it also includes protection against disparate impact. Disparate impact applies to practices that are neutral on their face, but unintentionally discriminate against persons of a protected class.
In 2015, in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., the Supreme Court’s 5-4 decision recognized disparate impact claims as part of the FHA. Though this case specifically discussed the issuance of tax credits in predominately Black neighborhoods, the precedent also applies to resident screening cases. According to 24 CFR 100.500 (Discriminatory Conduct Under the Fair Housing Act), the burden of proof in these matters is a disproportionate adverse effect on a protected class, a causal link between this adverse effect and the policy or practice, and a direct link between the conduct and the alleged injury.
In January 2023, the Department of Justice filed a statement of interest in Louis v. SafeRent, a case pending in the U.S. District Court for the District of Massachusetts which alleges racial discrimination by denying housing based on the prospective residents’ SafeRent scores. At issue in Louis v. SafeRent is the process through which a resident screening report is created rather than the practice of utilizing a report for screening purposes. However, other recent cases regarding resident screening rely on the same matter of law.
Disparate impact claims in the rental housing space are based on policies and procedures such as alleged blanket bans regarding criminal history and those questioning the accuracy of data in resident screening reports. Under the FHA, plaintiffs in each of these matters must prove a prima facie case in which “a plaintiff must demonstrate that an outwardly neutral practice actually or predictably has a discriminatory effect; that is, has a significantly adverse or disproportionate impact on minorities, or perpetuates segregation.” Unless able to prove direct evidence of discrimination, these claims proceed under the McDonnell Douglas burden-shifting framework wherein the plaintiff has the burden of proving a prima facie case and the responsibility to refute each affirmative defense unless able to prove direct evidence of discrimination. According to Boykin v. KeyCorp, this test can be applied to cases brought under the FHA disparate impact rule. This test can be applied to cases brought under the FHA disparate impact rule.
Reference to an existing housing shortage is insufficient to prove an adverse effect on members of a protected class. However, existing case law in Andrews v. City of New York and Brown v. Omaha Housing Authority supports the use of statistics to prove a claim. Many cases use data, such as local demographics, conviction rates and, in the case of Louis v. SafeRent, racial statistics, of voucher holders to support their discrimination claims.
The initial pleading in Louis v. SafeRent states, “Credit scoring models, and the scores that they produce, consider past credit data which is systemically and historically biased against non-white consumers,” citing several studies on average credit scores and economic data. The causal connection between a policy or practice and the statistical analysis must be included in the initial claim if relied on to satisfy this requirement. Louis v. SafeRent alleges this causation takes place when, “[h]ousing providers cannot exercise any independent judgment as to the scores for their applicants and can only accept the calculations made by” a screening provider. Other claims, including those made in recent years by the Florida Fair Housing Alliance, claim this disparity results from owner-operator policies such as blanket bans on felony convictions. Despite the specifics of these claims, they all rely on the same standard of proof, one where housing providers must document and defend their screening practices to illustrate decisions are made based on fair and equally applied screening criteria. Should these criteria still risk resulting in a disparate impact, business policies must be reviewed to eliminate potentiality of claims under the FHA.
Fair Credit Reporting Act
Per the FCRA, “Title VI of the Consumer Credit Protection Act, protects information collected by consumer reporting agencies such as credit bureaus, medical information companies and tenant screening services.” The 2021 CFPB advisory report details the importance of accuracy in background check reporting, including the risk of name-only matching on reports, meaning it does not “satisfy the standard of ‘reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.’”
Recent action by the FTC resulted in a $15 million dollar settlement from Trans Union, LLC in a lawsuit charging them with providing inaccurate tenant screening reports including inaccurate or incomplete eviction records. As outlined in the proposed order, which must be approved by federal court, eleven million of the settlement is meant to compensate consumers and an additional four million as a civil penalty. In addition to enacting prohibited business practices that result in reporting errors, Trans Union is further required to enact formal best practice control to ensure continued data and reporting accuracy. Cortez v. Trans Union outlined the “reasonableness of a credit reporting agency's procedures involves weighing the potential harm from inaccuracy against the burden of safeguarding against such inaccuracy.” Additional regulations include state deceptive trade practices laws, under which plaintiffs may allege additional claims. The primary responsibilities for a property owner concerning FCRA compliance include obtaining permission to order a report and providing notice of an adverse action. In 1974, Conley v. TRW Credit Data defined receiving and reviewing consumer reports as “household purposes” under the FCRA. Property owners utilizing these reports, even if not viewing it in its entirety, fall into this category as the information. They are also considered debt collectors when reporting a negative payment history.
Under Cortez v. Trans Union, the court details the burden on the plaintiff to provide evidence to demonstrate a failure to follow reasonable procedures beyond citing an inaccuracy. However, the jury may find the inaccuracy proof of unreasonable procedures, and the burden then shifts to the defendant to prove otherwise. The credit reporting agency remains a third party in disputes wherein an initial debt reporter has more information to review regarding the reported claim. Gorman v. Wolpoff & Abramson clarified there is no duty to investigate an inaccuracy until the reporting party receives notice from the consumer as outlined in 15 U.S.C. § 1681i.
The FTC’s business guidance and the FCRA list situations under which a property owner may obtain a consumer report, and existing case law specifies additional aspects of the consumer reporting process as related to property owners. In Ali v. Vikar Mgmt., the court granted summary judgment in favor of the plaintiff when it determined the property owner obtained a credit report under false pretenses as the defendant claimed to have obtained the report to verify address information. However, according to Koropoulos v. Credit Bureau, false pretenses are not applicable to the credit report of the other spouse when one applies for credit even in cases of marital separation as there is no assumption the property owner would be aware. Conley v. TRW Credit Data further details the rights of both spouses to bring suit under the FCRA.
Notice of adverse action, such as denial of a rental application is outlined in §1681(m) of the FCRA and can be “oral, written, or electronic.” Espino v. Winn Residential ruled plaintiffs “must allege specific facts identifying the information [they contend] [landlord] failed to provide, as well as the relevant subsection of the FCRA's notice section.” Defendants are liable for statutory damages under the FCRA if they fail to comply with adverse action notice requirements. Housing providers are responsible for both correctly obtaining a credit report and providing notice of adverse action to remain compliant with FCRA requirements. To alleviate any potential for miscommunication, they should take care to establish a standard operating procedure and obtain and maintain proper documentation to ensure compliance and limit liability.
Conclusion
Many of these cases in this space conclude in alternative dispute resolution. However, existing case law highlights the importance of compliance with FCRA permission and notice requirements. Claims under the FHA are an ever-evolving landscape lead by continued executive guidance. Continued scrutiny requires a review of policies and procedures and will be subject to further court rulings.