Earlier this month, the Consumer Financial Protection Bureau (the “CFPB”) and Federal Trade Commission (the “FTC”) announced that they had issued a request for information (“RFI”) seeking public comment on “background screening issues affecting individuals who seek rental housing in the United States, including how the use of criminal and eviction records and algorithms affect tenant screening decisions and may be driving discriminatory outcomes.” The deadline for submitting comments in response to the RFI is May 30, 2023.
While the RFI is described as focusing on the use of criminal and eviction records, artificial intelligence (“AI”) and algorithms in the tenant screening process, the issues that the RFI covers are broader, relating to the practices of both property managers and consumer reporting agencies (“CRAs”) selling tenant screening reports to such property managers. Of particular concern seems to be the perception that CRAs and users of consumer reports may be violating their respective obligations under the Fair Credit Reporting Act (the “FCRA”) and may be engaging in activities that constitute unfair, deceptive or abusive acts and practices (“UDAAPs”) under either the FTC Act or the Dodd-Frank Act.[1]
Because of the CFPB’s and FTC’s concerns over perceived potential FCRA and UDAAP violations, we recommend that CRAs and property managers alike consider how they can shore up their compliance posture ahead of what will likely be increased scrutiny of their practices. After providing some additional detail regarding the RFI, we offer our thoughts as to how they might do so below.
Context for the RFI
This RFI is being driven by the White House initiative “A Blueprint for a Renters Bill of Rights”, the goal of which is to “create a shared baseline for fairness for renters in the housing market.” Also of interest is a recent CFPB report titled “Consumer Snapshot: Tenant Background Checks,” which discusses consumer complaints that the CFPB has received about the tenant screening process. A quick review of these documents helps put the RFI in context.
The RFI divides its questions to which it seeks responses into four categories: tenant screening generally, the use of criminal records, the use of eviction records, and the use of algorithms.
Tenant Screening Generally
The RFI includes questions regarding CRAs’ and property managers’ compliance with these requirements, as well as questions regarding such topics as:
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substantive criteria used in screening applicants;
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communications with applicants regarding the screening process;
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fees charged to applicants;
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the impact of tenant screening practices on certain groups or communities; and
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how property managers handle applications from applicants who have disputed information on their consumer reports.
The Use of Criminal and Eviction Records
The use of public records generally, and criminal and eviction records specifically, in various screening contexts has attracted regulatory scrutiny for a long time. In that sense, the inclusion of questions regarding the reliability of such records and how they are used should not be surprising. However, the RFI includes some questions that provide insight into some new issues they may be considering, including:
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What steps, if any, do landlords, property managers, and other industry participants take to avoid discriminatory impacts from their use of criminal records in assessing prospective tenants?
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What steps, if any, do landlords, property managers, and other industry participants take to verify criminal record information with prospective tenants?
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What research (statistical or otherwise) exists to show whether criminal records (or particular types of criminal records) are useful or relevant to assessing whether a particular individual is more likely to have a negative housing outcome (for example, to damage property, harm other residents, or otherwise violate their lease) when compared to the general population?
Algorithmic and AI Governance
The FTC, other federal agencies, and the White House have amplified the conversation around the use of algorithms and AI, as well as responsible and ethical AI, and AI governance. The FTC released guidance that aligns generally with prevailing AI governance frameworks (such as the White House’s and NIST’s) that requires:
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transparency (how are automated tools used);
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explainability (ability to explain why/how AI affected decision-making);
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fairness (ensuring processes are non-discriminatory and allowing people access to and ability to correct information used to make decisions about them);
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robustness/repeatability and security of AI models and data; and
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accountability and oversight (what processes are in place to ensure the foregoing and responsible/ethical AI generally).
Suggested Next Steps
We suggest that CRAs prepare for enhanced scrutiny of their use of criminal and eviction records and ensure that they are able to articulate and demonstrate how any products incorporating AI comply with prevailing AI governance frameworks. We also recommend that property managers prepare for enhanced scrutiny of their screening practices and communications with applicants. Specifically, we would recommend that property managers:
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review their screening criteria and their communications with applicants to identify any potential exposure to claims of unfair or deceptive acts or practices under §5 of the FTC Act;
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review their FCRA adverse action process, including the form and substance of adverse action notices and the extent to which they have established procedures for communicating with applicants that believe an adverse action was based on an inaccurate consumer report;
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review how they are using any recommendations or algorithmic scores provided by a CRA; and
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take reasonable steps to confirm that CRAs from which they are obtaining consumer reports:
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have robust processes to satisfy their FCRA data accuracy obligations; and
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have thoughtfully addressed responsible and ethical use of AI and algorithms.
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FOOTNOTES
[1] Note that the CFPB and FTC both have jurisdiction over property managers in their capacity as users of consumer reports, which are regulated by the FCRA. In addition, the FTC has jurisdiction over property managers to enforce §5 of the FTC Act, which prohibits unfair or deceptive acts or practices, while the CFPB does not have UDAAP jurisdiction over the property leasing industry, except in a rent-to-own context. Both the CFPB and FTC have jurisdiction over CRAs.
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