What Does The New CFPB Advisory Opinions on FCRA Requirements for Background Screening Mean For Park Owners And Managers?

Regina Kaupanger and Mike Stout from National Tenant Network (NTN) explain the newest developments in rental screening. 
Recent Federal actions including the publication of policy advisory decisions as well as Court ordered punitive financial awards focus around a central theme – accuracy in the entire rental application and screening process.  As owners and managers of residential rental investments you may ask, “What are the implications of these decisions and precedents for me and my business?”  This article explores this in more detail.

The Consumer Financial Protection Bureau (CFPB) issued two advisory opinions that reiterated the requirements in existing law including the Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transactions Act (FACTA).

As summarized in Rental Housing Journal “New Warnings on Inaccurate Tenant Background Checks” published January 15, 2024 by John Triplett
·       First, an advisory opinion on background check reports highlights that those reports must be complete, accurate, and free of information that is duplicative, outdated, expunged, sealed, or otherwise legally restricted from public access.
·       Second, an advisory opinion on file disclosure highlights that people are entitled to receive all information contained in their consumer file at the time they request it, along with the source or sources of the information contained within, including both the original and any intermediary or vendor source.

As recently as October 2023, the Federal Trade Commission (FTC) and the CFPB took action against TransUnion for Illegal Rental Background Check and Credit Reporting Practices -- Credit reporting conglomerate to pay $23 million for tenant screening and security freeze failures.  See  CFPB Press Release dated October 12, 2023
While these decisions and actions are most focused on Consumer Reporting Agencies, owners and managers are directly impacted by this.  Accuracy (including accuracy in the form of fraud detection) in the entire rental process is a desired element by both owners/managers and residents alike.  So, what are some actionable steps that Owner/Managers can take to achieve accuracy?

Shore up policies and procedures
  • Develop Rental Criteria -- Define the conditions and requirements an applicant must
    meet in order to rent your property. The criteria should include your standards for length of employment and residency and how much the applicant should make to qualify. (Three times the rent is the industry standard.) Criteria should also provide disqualifiers such as unpaid collections; judgments from rental communities, fraudulent use of a Social Security number or previous convictions of certain types of crimes.  It is good practice to have your rental criteria legally reviewed and published for the applicant to view/sign. 
  • Application and Permissions – Have your applicant fully complete and sign a Rental Application. 
    • Have each co-applicant/spouse complete an application.  Check for any differing information alerting you to any potential discrepancies.
    • Be sure you can READ all information on the application.
    • If there are blank spots, if the applicant cannot remember a current or previous address, or a landlord's name or phone number, this could indicate potential issues the applicant does not wish to disclose.
    • Each applicant over the age of 18 should be a party to your lease or rental agreement.
    • Make sure all applicants sign your application authorizing the screening process to proceed.
  • Check your Applicant's picture ID and Social Security Card
    • The picture ID may contain addresses your applicant did not provide on the application and will have the correct spelling of the applicant's name for accurate screening.  The picture ID will also depict the correct Date of Birth which is necessary for criminal record searches.  The picture ID will also have a date issued which in Arizona, depending on length of duration, can be a factor in helping to identify a Registered Sex Offender.
    • The name of the Social Security card should match the name on the picture ID and will provide the correct Social Security Number (SSN) necessary for accurate screening.
    • If the Applicant has a Security Freeze on their Credit, ask them to lift the Freeze before screening.
As far as background resident screening, as the saying goes, “Don't attempt to do this yourself at home.”  Owners and Managers may try to review public court websites or social media sites to screen applicants.  However, they may be unfamiliar with Federal law requirements when it comes to vetting an applicant; and, instead, may subject themselves to heightened liability risk.  Utilize resident screening companies that are experts in their field.  However, keep in mind that not all screening companies have instituted business processes for verification to meet the requirements of accuracy. While housing court and criminal records are important components of effective risk assessment, they generally lack applicant-specific identifiers (like SSN or DOB) making definite reporting a practical impossibility.  Anyone who has screened an applicant with a common name understands how difficult it is to complete verification of records.  That is why National Tenant Network (NTN) developed NTN Quality Assurance where our experienced team of local researchers review any report with name-match records and help return relevant results.  This process assists in record confirmation -- something that computer matching (even the newly evolving technology of AI Artificial Intelligence) would inevitably miss.
Finally, in our discussion of accuracy, it is important to keep in mind that as an Owner and/or Manager, it a win-win situation for the Owner/Property Manager and the entire rental community to have an accurate application and screening process to detect fraud in applications and produce accuracy in report results.  But, equally important, is starting at the very beginning of the process and that is to ensure accuracy in the applicant themselves to detect fraudulent APPLICANTS.  Many are familiar with the classical cases of fraudulent IDs and have even been trained to detect signs of authentic Social Security cards and Driver's License or ID cards.  However, after twenty plus years in the tenant screening industry, a newer, high tech form of fraud called Credit Privacy Numbers (CPNs for short) is becoming more prevalent.  Background screening companies are not equipped in their business processes to identify this early on in the process. It became apparent during the Pandemic lockdowns that CPNs were becoming an exponential threat to companies looking to fill vacancies as more business was done online and less in-person.  As a necessity, companies began looking to find a way to deter the use of CPNs.

A way to achieve this deterrence is to select a company that specializes in identity authentication, for example, True & Verified. True & Verified provides applicant identity authentications prior to the actual application process so Owners/Managers can be confident they are only dealing with legitimate and authenticated applicants which ultimately helps streamline the tenant screening process even further. The prevalence of the use of CPNs is astonishing.  In mid-2020, True & Verified's first user began testing the systems and accurately identified and deterred fifteen percent of their applicants who were unable to authenticate their identities.  In using companies like True & Verified, you can rest assured that you are getting accurate information about your applicants so all you have to do is make the best decisions for your rental business.
In conclusion, the overriding objective of accuracy is imperative in the entire rental application and selection process including the following: policies and procedures, applicant background checking and reporting, and applicant accuracy measures to detect fraudulent applicants. All of these are not
opposing goals; but, instead, represent win-win congruent situations for the Owner/Manager and the Rental Community.