There is a great deal of misinformation in the tenant screening industry regarding the so-called "Red Flags Rule", including the suggestion that the Red Flags Rule (that portion associated with FACTA Section 114) applies to landlords and property managers.

In late 2007, The FTC (and others) published guidelines implementing Sections 114 and 315 of FACTA.  Rules relating to Section 114 of FACTA (Section 615 of the FCRA), correctly referred to as the Red Flags Rule, pertains to financial institutions and creditors.  Apartment owners and managers solely engaged in the business of renting apartments and whose use of tenant screening services is limited to that purpose, typically do not fall within the definition of a financial institution or creditor and are not generally required to comply with Section 114. 

Rules associated with Section 315 of FACTA do apply to landlords and property managers, however.  As users of consumer reports (Users), landlords who receive a notice of address discrepancy from a consumer reporting agency (CRA), are required to take reasonable steps to confirm the identity of the applicant (consumer) - to confirm that the applicant is the individual described in the report.  Users who regularly and in the ordinary course of business furnish information to the CRA, must reconcile the address of the consumer with the CRA.  Most landlords do not regularly furnish information to CRA's, so this provision typically does not apply.

It is recommended that landlords develop and implement formal policies and procedures to confirm the identity of the applicant (consumer) as part of their background screening process - whether up front in the case of the traditional (or landlord-initiated) tenant screening model or prior to move-in in the case of the applicant-initiated tenant screening model.  Requiring valid government issued picture identification and comparing that to information provided in the application is a great place to start.  Discrepancies between the current address listed on the application and that on file with the credit bureau are common - but should be explained and documented.

For additional information regarding this and other landlord screening topics visit Moco Inc or MyScreeningReport.com. 

posted @ Tuesday, May 15, 2012 12:39 PM | Feedback (0)

The federal Equal Employment Opportunity Commission (EEOC) just published updated Enforcement Guidance (Guidelines) regarding use of criminal records for employment screening (background investigation) purposes.  The new Guidelines state that use of criminal records in making employment decisions in some  instances violates the prohibition against employment discrimination under Title VII of the Civil Rights Act of 1964.  The focus is on employment discrimination based on race and national origin.

The purpose of this writing is to briefly summarize the findings of the EEOC and suggest (or reiterate) best practices to reduce the risk of a discrimination claim arising out of your background screening process. 

First of all, it is important to understand that the Guidelines are built on the "disparate impact" legal theory.  Under this theory, practices which have a disproportionately negative impact on protected individuals can form the basis of a discrimination claim - regardless of intent or the consistency with which the practice is applied.  Once disparate impact is established, the burden shifts to (you) the employer to establish job relatedness (or business necessity) - making this type of claim particularly challenging.

According to the EEOC, there are two scenarios under which employers are likely to meet the "job-related" or "business necessity" tests in defense of a disparate impact discrimination claim.  The first is when the employer has previously conducted a validation study.  A validation study is a statistical analysis of the correlation between criminal conduct and subsequent work performance.  Suffice it to say that this is impractical except for very large organizations.

The second scenario (defense) is supported by case law and is applicable to the majority of employers.  Under this scenario the employer develops a targeted background screening process which considers at least the nature of the crime, the time elapsed and the nature of the job - and which provides an opportunity for an individualized assessment to further consider job relatedness and perhaps mitigating factors.  The Commission acknowledges that individualized assessments are not strictly required under Title VII, but that a failure to conduct such an assessment increases the likelihood of a Title VII violation.

There are two background screening practices that substantially increase the risk of a Title VII claim under the revised Enforcement Guidelines. 

1. Refusing to hire or terminating employment for records of arrest (versus convictions).
2. Refusing to hire or terminating employment for any and all convictions - even any and all felony convictions.

The EEOC points out that records of arrest do not establish that criminal conduct has occurred.  Use of records of arrest (versus convictions), therefore, is much harder to defend and, frankly, best avoided. 

Blanket policies regarding criminal (even felony) convictions are and continue to be a bad idea.  It is best to develop a list of offenses you judge to be relevant to each position.  Note that the Commission recommends that employers not ask about convictions on initial job applications and that if and when they make such inquiries, those inquiries be limited to convictions judged to be job related for the specific position. 

Conclusion & Recommendations

The risk of a discrimination claim for employers increases with these Guidelines.  It is important, therefore, to review your employment background screening practices and consider the following suggestions to mitigate that risk:

1. Do not inquire about criminal convictions in the initial employment application - do so only after extending a conditional offer.
2. Consider only criminal convictions and active warrants.  Do not consider records of arrest.
3. Consider only criminal convictions, the date of final disposition of which is less than seven years prior to the application date.
4. Develop a specific list of offenses that are applicable to your position(s). 
5. Send Pre-adverse Action Notices - prior to declining to hire or terminating employees based on criminal records.  Note that this is required under the federal Fair Credit Reporting Act.
6. Give applicants and employees an opportunity to offer mitigating factors prior to making a final decision.

While there is no way to eliminate the risk entirely, following the above best practices will (in our opinion) substantially reduce the risk of Title VII claims while still providing you with the tools you need to run a successful business.  Note that practices 1-3 are equally pertinent to tenant screening.

Visit MyScreeningReport.com® or Moco Inc, The Information Source for additional employment screening resources.

posted @ Monday, April 30, 2012 9:55 AM | Feedback (0)

State landlord-tenant-law often places limits on what landlords can charge applicants for tenant screening reports.

For example, Washington's Residential Landlord-Tenant Act (RCW 59.18.257) states that "If a landlord uses a tenant screening service, then the landlord may only charge for the costs incurred for using the tenant screening service."  It further states that "If a landlord conducts his or her own screening of tenants, then the landlord may charge his or her actual costs in obtaining the background check, but the amount may not exceed the customary costs charged by a tenant screening service in the general area."

Washington law also states that "A landlord may not charge a prospective tenant for the cost of obtaining tenant screening services… unless the landlord first notifies the prospective tenant in writing of what the tenant screening entails, the prospective tenants rights to dispute the accuracy of the information provided by the tenant screening service or provided by entities listed on the tenant application who will be contacted for information concerning the tenant, and the name and address of the tenant screening service used by the landlord.

Effective June 7, 2012, Washington law will require that prior to obtaining any information about a prospective tenant <and in order to charge the prospective tenant for tenant screening>, the prospective landlord must first notify the prospective tenant in writing, or by posting of:

• What types of information will be accessed to conduct the tenant screening;

• What criteria may result in a denial of the application; and

• If a consumer report is used, the name and address of the consumer reporting agency and the prospective tenant's right to obtain a free copy of the consumer report in the event of a denial or other adverse action, and to dispute the accuracy of information appearing in the consumer report."

California Civil Code 1950.6 actually limits tenant screening fees to a specific dollar amount.  The amount was originally established at $30 in 1998, allowing for adjustments equal to changes in the Consumer Price Index (CPI).  The current limit (as of this writing) is approximately $43.50 per person.  California law further requires that if the landlord charges a tenant screening fee:

• The landlord must provide a receipt detailing the charge - displaying that portion that is paid to a consumer reporting agency and that portion which goes to offset other direct costs incurred by the landlord.

• The landlord must provide a copy of the consumer credit report if requested by the applicant.

Other states have similar statutes, so it is advisable to charge applicants only what the tenant screening company charges you.  If you use a tenant screening service for only part of the screening process - to provide a credit report and public records searches, for example  - but you conduct rental and employment verification yourself - it is likely permissible to charge for your actual costs (in addition to what you are charged by the tenant screening company) as long as the total tenant screening fee does not exceed what a screening company would charge for similar services.

It is a "best practice" in the rental housing business to address the above requirements in the rental application - to require a signature acknowledging the above disclosures and authorizing the procurement of a tenant screening (consumer) report.  That way there is no question that you are compliant with state (and federal) law and that the consumer is generally aware of their rights under the law.

Another best practice is to provide (in writing or by posting) your rental criteria before charging a tenant screening fee - so that the applicant knows up front whether they will be approved - before completing the application or paying an application fee.  This practice has the added benefit of saving you (the landlord) precious time and the added risk associated with collecting and storing personal information that you will not use.

To this point, we have discussed tenant screening fees within the context of the traditional screening model - wherein the landlord procures the tenant screening report directly from a tenant screening service.  Direct-to-consumer(D2C) tenant screening products are different.  Under the D2C model, applicants order (and pay for) tenant screening reports on themselves - which they then share with the landlord or landlords of their choice.  This eliminates requirements imposed on landlords who charge a tenant screening fee.  For more information regarding these innovative new products, please visit MyScreeningReport.com®.  Visit Moco Incorporated for access to additional landlord recourses.

posted @ Tuesday, April 10, 2012 9:14 AM | Feedback (0)

Tenant screening is a process used primarily by residential landlords and property managers to evaluate prospective tenants. The purpose of the tenant screening process is to assess the likelihood the tenant will fulfill the terms of the lease or rental agreement. The process culminates in a decision as to whether to approve the applicant, approve the applicant conditionally (such as requiring an increased deposit or cosigner) or deny tenancy.

Title VIII of the Civil Rights Act of 1968 (Fair Housing Act) prohibits discrimination in the sale, rental and financing of dwellings based on race, color, religion, sex or national origin. Title VIII was amended in 1988 (effective March 12, 1989) by the Fair Housing Amendments Act, which expanded coverage of the Fair Housing Act to prohibit discrimination based on disability or familial status (presence of child under age the of 18, and pregnant women).

State law often expands protections guaranteed under Title VIII.  Washington law, for example, prohibits discrimination based on marital status, sexual orientation and domestic violence victim status. 

Violating (or even being accused of violating) state or federal fair housing law in your tenant screening process can be disastrous - in terms of the time and expense associated with responding - as well penalties that may be assigned.  So it is important that there is nothing in your tenant screening process that is (or ideally may be perceived as) discriminatory - that treats protected individuals differently than others. 

The tenant screening process begins with the Application to Rent.

The Application

As a rule, there should be nothing in the rental application that directly solicits information regarding membership in a protected class.  Asking an applicant where they were born, for example, might elicit information regarding national origin.  Asking applicants and co-applicants whether they are married goes to marital status.  Similarly, charging married couples a lower application (background screening) fee may run afoul of marital status or sexual orientation protections. 

Tenant Screening Report

Background checks (tenant screening reports) are a critical component of the tenant screening process.  There should be nothing in your screening reports that associates the applicant with a protected class.  Some tenant screening companies will return "protection orders" granted to victims of domestic violence as part of a civil records search.  Bad idea - certainly in the State of Washington (for example) where victims of domestic violence are specifically protected under RCW 59.18.580.  Records of arrest are a bad idea as well, since it is well established that reliance on records of arrest has a disparate impact on protected individuals.

Few would dispute the business necessity of considering convictions for serious offenses - but convincing a jury of the business necessity of considering records of arrest (alone) will be much more difficult.

Considering minor (or unrelated) convictions, or convictions that occurred long ago may also be problematic - in terms of the disparate impact discrimination exposure.  So it is advisable to limit your criminal search parameters to convictions for specific (serious) offenses, the dates of final disposition is more than 7 years old - a limit commonly found in state law. 

The bottom line is if you cannot use the information, you do not want it in your file.  If your tenant screening company returns information you cannot use, ask them to stop.

Your Criteria

It is important to craft and carefully follow criteria that does not discriminate - directly or indirectly (under the disparate impact legal theory).  Well-crafted criteria applies thresholds to objective credit, public records, rental and employment data to arrive at a decision whether to approve, approve conditionally or deny tenancy. 

Visit MyScreeningReport.com® or Moco Incorporated for a free Criteria Worksheet and other helpful tools for landlords.

The good news in all of this is that a well crafted tenant screening process allows you to carefully screen prospective tenants while minimizing the risk of a fair housing claim.

posted @ Friday, April 06, 2012 2:08 PM | Feedback (0)

The Washington State legislature recently passed (and forwarded to the governor for her signature) a bill (SB 6315/HB 2642) which amends the Residential Landlord-Tenant Act (RCW 59.18), imposing two new requirements on Washington landlords. The law is referred to as the "Fair Tenant Screening Act" and is effective June 7, 2012.   Specifically, Section 3 of RCW 59.18.257 is amended to read (in part) as follows:   "Prior to obtaining any information about a prospective tenant , the prospective landlord first notify the prospective tenant in writing, or by posting of: What types of information will be accessed to conduct the tenant screening; What criteria may result in a denial of the application; and If a consumer report is used, the name and address of the consumer reporting agency and the prospective tenant's right to obtain a free copy of the consumer report in the event of a denial or other adverse action, and to dispute the accuracy of information appearing in the consumer report." "If a prospective landlord takes an adverse action, the prospective landlord shall provide a written notice of the adverse action to the prospective tenant that states the reasons for the adverse action. The adverse action notice must contain ."  Previously, adverse action notices were not required to be in writing. In a nutshell, the law requires what have become industry best practices - providing written criteria (up front) and written adverse action notice (out back - when adverse action is taken). If you use Moco Inc (Moco) for tenant screening and your services include a "recommendation," Moco furnished a criteria document that you can provide to your applicants. If you do not use Moco for tenant screening or your services do not include a "recommendation", you need to develop your own criteria document.  A Criteria Worksheet is available on Moco's web site or on Moco's MyScreeningReport.com® web site to assist you with this process.   Moco's standard "Application to Rent" includes disclosure of the types of information accessed and the applicant's rights under state and federal consumer reporting law. We made minor changes to our standard "Adverse Action Notice" and our "Adverse Action Notice (Score) documents to align them with the format required by the bill.   Bottom line - if you provide your rental criteria up front (in writing or by posting), and if you use Moco's standard Application to Rent and Adverse Action Notice forms, you are in compliance with the new law.   Note that this legislation arose out of rare consensus among the major stakeholders - landlords, tenant advocates and consumer reporting agencies. The objective is to reduce costs and increase transparency associated with the tenant screening process for low income applicants and others - which most agree is a good thing. 

posted @ Friday, March 16, 2012 9:37 AM | Feedback (0)

Section 615(a) of the Fair Credit Reporting Act (FCRA) requires that "If any person <such as a landlord> takes any Adverse Action with respect to any consumer <applicant> that is based in whole or in part on any information contained in a consumer report, the person shall <provide notice of the Adverse Action to the consumer>…."

Section 1100(f) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) amends Section 615(a) of the FCRA to require written or electronic disclosure of any numerical Credit Score used by a person in taking adverse action based in whole or in part on any information in a consumer report.

A Credit Score is defined as a numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default.  A FICO score is a Credit Score since it is commonly used by persons who make or arrange loans, whether or not it is actually being used for that purpose.  Credit Scores do not include scores or ratings that consider one or more factors in addition to credit information such as a loan to value ratio.

Simply stated, if you (as a landlord) take Adverse Action based in whole or in part on a consumer report (tenant screening report), and if that report includes a Credit Score (FICO or similar), you must provide written or electronic disclosure of specific information about that score as part of your Adverse Action Notice.  The disclosure must include the following elements:

           ·    Numerical Score
           ·    Score Range
           ·    Score Factors
           ·    Score Date
           ·    Score Source

Recommendation (only) tenant screening reports based on Credit Scores create an interesting dilemma, since they lack the detail necessary for End-users to comply with the above requirement. 

What to do?

1.   Contact your tenant screening company to confirm whether or not your tenant screening reports include a Credit Score (as defined) - or if they rely on a Credit Score to arrive at a recommendation.

2.   If your tenant screening reports DO NOT INCLUDE a Credit Score and if your tenant screening company does not RELY ON a Credit Score to arrive at a recommendation - no action is required.

3.   If you RECEIVE but DO NOT USE a Credit Score - ask your tenant screening company to remove the Credit Score from your reports. 

4.   If you RECEIVE a Credit Score you must include the above disclosure in your Adverse Action Notices.

5.   If you use a Recommendation (only) type of tenant screening report and if those recommendations are based on a Credit Score, contact your tenant screening company to explore your options. 

The purpose of these new regulations is to bring greater transparency to consumer reporting and to increase access by consumers to information they need to better manage their affairs - including credit score(s).  Few would argue with those goals.  The challenge, of course, is integrating the new requirements into current processes and forms.  If you must make the Credit Score disclosure, contact your tenant screening company to ask if they provide an integrated Adverse Action Notice - one that pre-populates the required information - which will dramatically reduce the burden associated with these new regulations.

posted @ Thursday, March 01, 2012 1:40 PM | Feedback (1)

A growing number of states have followed Washington's lead and passed legislation limiting use of credit reports for employment background screening purposes - to positions for which that information is "substantially job related".  Washington, Hawaii, Oregon, California, Illinois, Maryland & Connecticut have passed such laws and many more are in the process of doing so.

Washington law does not specifically define the term "substantially job related" - leaving it instead to the employer and (unfortunately) the courts to decide.  Other states have done a better job.  Illinois, for example defines "job-relatedness" as follows:

1. State or federal law requires bonding or other security covering an individual holding the position.
2. The duties of the position include custody of or unsupervised access to cash or marketable assets valued at $2,500 or more.
3. The duties of the position include signatory power over business assets of $100 or more per transaction.
4. The position is a managerial position which involves setting the direction or control of the business.
5. The position involves access to personal or confidential information, financial information, trade secrets, or State or national security information.
6. The position meets criteria in administrative rules, if any, that the U.S. Department of Labor or the Illinois Department of Labor has promulgated to establish the circumstances in which a credit history is a bona fide occupational requirement.
7. The employee's or applicant's credit history is otherwise required by or exempt under federal or State law.

The reasoning behind these laws is that use of credit in employment background checks can be unfair given current economic conditions - the fact that many responsible people are unemployed and suffered financial setbacks through little or no fault of their own.  Further, it is argued that use of credit for pre-employment screening has a "disparate impact" on protected individuals and that there is little or no correlation between credit standing and job performance.

So use of credit for pre-employment screening presents a risk to employers - of lawsuits based on consumer reporting law and the "disparate impact" legal theory. 

The first question we (as employers) must ask ourselves, then, is whether the employee will be in a position to inflict financial harm on the firm or its customers (residents).  If the answer is "yes", they will almost certainly fall within one of the above categories (or exceptions) and underwriting credit standing is entirely appropriate.  Otherwise, the risk likely outweighs any benefit and the practice should be avoided - regardless of the state. 

Please visit Moco Incorporated or MyScreeningReport.com for more information about employment screening.

posted @ Wednesday, February 15, 2012 12:17 PM | Feedback (0)

How to Run a Credit Check on a Prospective Tenant

Tenant screening is a process used primarily by residential landlords and property managers to evaluate prospective tenants. The purpose is to assess the likelihood the tenant will fulfill the terms of the lease or rental agreement and tenant credit checks are an important part of this evaluation process.

Credit reports are a type of consumer report as defined and by the federal Fair Credit Reporting Act (FCRA).  The purchase and delivery of credit reports is tightly regulated because of the sensitive nature of the information, as well as privacy and identity theft concerns.

If you want to run a credit check on a prospective tenants you have a couple of options.  One is to enter into an agreement with Consumer Reporting Agency - generally one specializing in tenant screening (a tenant screening company).  These specialized consumer reporting agencies offer additional important services such as criminal and eviction records searches.

Federal law limits the use of consumer reports (including credit reports) to specific “permissible” purposes.  Tenant screening is one such permissible purpose.  The consumer reporting agency or tenant screening company will require you, the landlord, to certify your purpose and agree to specific terms and conditions by signing a tenant screening agreement.  The FCRA further requires the screening company to confirm your identity, confirm your permissible purpose and that you will properly safeguard the information once in your possession.  This process typically involves a site inspection and an audit of your systems and processes conducted by a 3rd party familiar with the requirements of the consumer reporting agency.

The certification process is a bit intrusive, time consuming and expensive.  While it makes sense for rental housing professionals, it is generally not practical for private landlords or those with fewer than 50 rental units.

An alternative - and much simpler - process for private landlords is direct-to-consumer tenant screening reports initiated by the applicant.  Direct-to-consumer screening reports are ordered and paid for by the applicant who then shares their report with you.  Since the applicant orders the report on themselves, there is no need for you to sign up with a screening company or go through the certification process. Some companies that offer these applicant initiated reports often offer the additional services the tenant screening companies offer. This model offers numerous additional benefits to both landlords and applicants.

Visit Moco Incorporated for information regarding the traditional (landlord initiated) tenant screening model.  For more information regarding consumer initiated tenant screening reports, visit MyScreeningReport.com®.  MyScreeningReport.com® is a product of Moco Incorporated.

posted @ Thursday, February 02, 2012 8:02 AM | Feedback (0)

Questions often arise regarding use of ITIN's for tenant screening background checks.

According to Internal Revenue Service Publication 1915, "An ITIN (Individual Taxpayer Identification Number) is a tax processing number, issued by the internal Revenue Service, for certain resident and nonresident aliens, their spouses, and their dependents.  It is a nine-digit number beginning with the number “9”,  has a range of numbers from “70” to “88” for the fourth and fifth digits and is formatted like an SSN (i.e. 9XX-7X-XXXX)." 

ITIN's are only available to individuals who are required to have a taxpayer identification number for tax purposes but who do not have, and are not eligible to obtain an SSN from the Social Security Administration (SSA).   

An ITIN:
  1. Does not authorize work in the U.S. or provide eligibility for Social Security Benefits or the Earned Income Tax Credit.
  2. Is not valid for identification outside of the tax system or production of tenant screening reports.
  3. Does not establish immigration status.

According to the Internal Revenue Service (IRS), ITIN's are strictly for tax processing.  The IRS does not apply the same standards as agencies that provide genuine identity certification.  People who apply for an ITIN are not required to apply in person, and IRS does not further validate the authenticity of identity documents.  Some unethical credit repair companies advise clients who have an SSN to apply for an ITIN and use it in place of their SSN (to hide derogatory credit information), which is illegal.  Therefore, ITIN's should not be requested or accepted as identification for non tax purposes. 

SSN's, as we all know, are useful as a form of identification and for pulling credit - and in that way are useful in the tenant screening process.  There is nothing wrong with asking for SSN's in your application and denying tenancy when there is fraudulent use of a voluntarily provided SSN.  However, it is best not to require an SSN (as a landlord) or take adverse action due to the lack of an SSN - as doing so can put you at risk of a disparate impact discrimination claim.   

Incidentally, while having a valid and verifiable SSN materially increases the chance of locating and pulling an individual's credit history, it is possible to pull credit by matching on name, address and date of birth information.  Just remember that ITIN's are not SSN's and are of no value for pulling credit. 

In summary, there is no practical way to verify ITIN's.  Nor are they useful for "pulling" credit.  Therefore, there is no place for ITIN collection and verification in your tenant screening process or criteria.

Visit MyScreeningReport.com® or contact us at info@myscreeningreport.com for additional information regarding tenant screening products and processes.  MyScreeningReport.com® is a product of Moco Incorporated.

posted @ Friday, January 20, 2012 12:26 PM | Feedback (1)

Verifying rental history is an essential part of the tenant screening process.  Rental verifications compliment credit and public records searches or background checks, by:

• Detecting eviction activity that may not yet have found its way into public records data or onto the credit report (as a civil judgment). 
• Revealing violations of landlord rules and regulations that may not have risen to the level of an eviction but are nevertheless important to you.
• Providing you with a more complete view of the kind of resident the applicant has been and is likely to be.

Logically, recent problems are most likely to go undetected in the landlord screening.  Done correctly, rental verifications will reduce or eliminate the exposure. 

Rental verifications should:

• Be done consistently.
• Include pursuit of undisclosed addresses found on credit reports – to determine whether they are apartment communities.  Search engines such as Google are useful for this purpose.  Consider asking the applicant about additional addresses appearing on the credit report but not disclosed on the application to rent.  
• Be sensitive to the way the person answers the phone.  It is most reassuring when the reference answers with the name of the apartment community. 
• Ask questions in ways that confirm the veracity of the reference by testing their knowledge of property management.  Some examples are:
  • Was the rental agreement verbal or written?
  • Was the agreement a lease or month-to-month?
• Ask the same questions of each reference – seeking fact versus opinion.  For example:
  • Number of documented noise complaints?
  • Number of documented late payments?
  • Move-in/move-out dates?
  • Etc?

Whether you do them yourself or outsource the function to one of the many tenant screening services, rental verifications are essential to the tenant screening process, managing resident profile and a healthy bottom line.

Visit Moco Incorporated or MyScreeningReport.com® for more information on this important topic.  MyScreeningReport.com® is a service of Moco Incorporated.

posted @ Tuesday, January 03, 2012 10:58 AM | Feedback (0)