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 http://www.myscreeningreport.com/employers.asp 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.

For more information about consumer initiated screening reports, please visit www.myscreeningreport.com. 

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.

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.

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

Tenant screening criteria that denies tenancy for any criminal conviction, regardless of the nature of the offense or when it occurred, increases the risk of "disparate impact" discrimination claims against the landlord.

Disparate impact is a legal theory for proving unlawful discrimination.  Tenant screening criteria that has a greater statistical impact on a protected class (race, national origin, etc.) is said to have a disparate impact on that class.  Once a member of a protected class proves that a policy or practice has a disparate impact on the class, the burden is shifted to employer or landlord (for example) to prove the practice is truly relevant to the position or tenancy (to establish the business necessity).

An individual may well be able to prove that a specific practice (consideration of income and credit standing, for example) has a disparate impact on a protected class.  A landlord will have little difficulty proving that things like income, credit standing and previous rental history are applicable to the tenancy, however.

Similarly, a plaintiff may be able to prove that underwriting criminal records (arrests & convictions) has a disparate impact on a protected class.  Odds are good that the landlord will be able to convince the court that recent convictions for serious offenses (crimes against persons or property and serious drug related offenses for example) are applicable to the tenancy.  Convictions for many minor offenses and offenses that occurred long ago are a different story. 

Landlords are well advised, therefore, to include in their tenant screening criteria offenses that are clearly relevant to the tenancy and limit consideration of those offenses to a reasonable period of time. 

The good news is that it is easy to establish a specific list of offenses, conviction of which has a "manifest relationship" to the tenancy.  There is also some precedent (in state law) for using "seven years from date of final disposition" as a cut-off - not considering anything older than that.  Date of final disposition means the date the individual completed their sentence and fulfilled any other obligations associated with their sentence or release.  Convicted felons who do not re-offended for seven years from the their date of final disposition are arguably no more likely to re-offend than the general population.

Use of active warrants is likely defensible.  Use of records of arrest, however, is likely not.

So... the bad news is that things are a bit more complicated than in the past.  But... the good news is that a well constructed tenant screening criteria... one that limits denials to specific offenses occurring within seven years of final disposition - serves to mitigate the risk of a disparate impact discrimination claim and ) deny fewer applicants good applicants.

For help developing or refining your own tenant screening criteria, see the Rental Criteria Worksheet the Landlord Page on MyScreeningReport.com.

posted @ Friday, November 04, 2011 1:39 PM | Feedback (1)

Under the negligent hiring theory, an injured party (another employee, a resident or others) may bring an action against an employer arguing that the employer failed to exercise reasonable care in screening prospective employees. 

A recent judgment against the Charlotte (North Carolina) Housing Authority establishes a similar precedent with regard to tenant screening - which might be described as the negligent leasing theory.  Under this negligent leasing theory, an injured party (employee, another resident or others) may bring an action against a landlord arguing that the landlord failed to exercise sufficient care in conducting background checks on prospective tenants.

In this case, the victim (63) was strangled to death in her apartment (in a public housing complex managed by the Charlotte Housing Authority) by a neighbor who had a history of violence, drug related offenses and mental illness.  The estate of the victim brought suit arguing that the housing authority failed to properly screen the tenant (perpetrator).

At issue was the criminal records search.  According to testimony the Housing Authority only does local or state-wide criminal searches.  A more thorough (broader) background screening (that included Maryland) would have revealed the applicants criminal past.  The jury concluded that the Authority could have and should have known more before renting to the perpetrator and awarded the victim's estate $132,000 in damages.

A thorough background check (criminal records search) includes searching additional names (AKA's) and addresses (jurisdictions) associated with the applicant.  Fully one third of valid (and verifiable) criminal "hits" are the result of these additional search. 

The data show that approximately 4% of applicants have serious (or deniable) criminal convictions in their past.  A static search (single name & single jurisdiction) will identify serious offenses in 2-3% of applicants.  Thus, a failure to conduct these additional searches means a typical 100 unit property will have between 1-2 serious offenders living on site.  Granted, it is only a problem if something bad happens.  But if something bad does happen, the landlord is vulnerable to a negligent leasing claim.

Talk with your tenant screening company.  Know exactly what is included in the public records component of your tenant screening reports.  Ask that they search additional names & jurisdictions.  It should add very little time and expense to the tenant screening process - time and expense that is easily offset by avoiding serious problems down the road. 

Visit MyScreeningReport.com to learn more about comprehensive tenant screening reports.

posted @ Friday, November 04, 2011 1:28 PM | Feedback (0)

A question arises as to whether landlords are prohibited from renting to undocumented aliens and whether establishing residency status should be part of a landlord's tenant screening process.

Here is an article in the Huffington Post about a recent U.S. Supreme Court ruling (June 2011) on a Hazelton, Pennsylvania ordinance penalizing landlords for renting to undocumented aliens. 

http://www.huffingtonpost.com/2011/06/06/hazleton-pennsylvania-immigration_n_871791.html

A federal appeals court previously prohibited enforcement of the Hazelton (and similar) ordinance(s). The Supreme Court decision sent the case back to the appeals court for review… based on another Supreme Court decision upholding an Arizona employer sanctions law and a state's right to enforce federal immigration law.

Note that the order does not automatically mean Hazleton can enforce the measure - only that the matter must be reviewed by the appeals court in light of the previous decision.  If the appeals court reverses itself, then landlords in those jurisdictions which pass such laws may well be prohibited from renting to undocumented aliens.

Another question might be… is it within the landlord’s rights to deny tenancy based on residency status - as part of their tenant screening process?  

There is little question that verifying residency status as part of the tenant screening process will have a disparate impact on individuals protected by virtue of national origin - which in turn may form the basis of a discrimination claim.  Disparate impact claims are challenging and arguably best avoided, since the burden of proof shifts to the defendant (landlord) who must then establish the business necessity of the practice. 

The bottom line is that landlords are currently not prohibited from renting to undocumented aliens.  Verifying residency status exposes the landlords to disparate impact claims.  Further, landlords are generally more concerned about whether the applicant will fulfill their lease obligation than whether they are in the country legally.  On a business level, assuming you are able to verify identity of the applicant and that they are otherwise well qualified - in terms of credit, public records, rental and income verifications - requiring proof of residency status should probably not be part of your tenant screening process.  

MyScreeningReport.com offers a handy Criteria Worksheet if you need assistance with your tenant screening criteria. 

posted @ Monday, October 24, 2011 2:34 PM | Feedback (0)

Federal law imposes several duties on users of background screening reports.

Section 604 of the Fair Credit Reporting Active - 15 USC §1681 et seq - (FCRA), requires that:

*      A User of a Consumer Report (background check) for Employment purposes, before taking Adverse Action based in whole or in part on the contents of the report, provide to the consumer (applicant or employee) to whom the report relates:

-   A copy of the report; and

-   A description in writing of the rights of the consumer as prescribed by the Federal Trade Commission (FTC).

-   FTC Summary of Rights - click on this link to download a copy of the FTC Summary of Rights (available on Moco's web site).

 *      Any person who takes Adverse Actions based in whole or in part on information contained in a Consumer Report (background check) must after the action is taken:

-   Provide oral, written or electronic notice of the Adverse Action to the consumer; and

-   Provide orally, in writing, or electronically the name, address and telephone number of the Consumer Reporting Agency that furnished the report - including a statement that the Consumer Reporting Agency did not make the decision to take the Adverse Action and, therefore, is unable to provide the Consumer with specific reasons why the Adverse Action was taken.

-   Adverse Action Notice (Employment) - click on this link to download a standard Adverse Action Notice (available on Moco's web site) which addresses both requirements.

State law often includes similar requirements.  So a failure to comply by users of pre-employment screening reports may form the basis of regulatory or legal action at both state and federal levels.

It is hard to argue with the notion that prospective employees (applicants) should have an opportunity to dispute information that is reporting in error - before that information negatively impacts their job search. 

The problem is that the FCRA gives Consumer Reporting Agencies (CRA's) 30 days to respond to disputes and correct errors that appear in their screening reports.  This can be a problem for applicants and employers.  The answer is to provide the Pre-Adverse Action Notification (including a copy of the report) as soon as possible - and then to work with your pre-employment screening company to expedite the investigation. 

Note that direct-to-consumer employment screening reports solve this problem by putting the consumer in control of their own data.  Applicants order, review and (if necessary) dispute content they believe is being reported in error prior to granting access to the employer - there is no need to advise them of their right to (or provide them with) a copy of their screening report. 

Section 607(b) of the FCRA says that, "Whenever a consumer reporting agency prepares a consumer (screening) report  it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates" - "reasonable procedures" being the operative words.  CRA's cannot (as a practical matter) guarantee error free reports - only that they have taken reasonable steps to ensure maximum possible accuracy. 

Specifically, it is important to know that your pre-employment screening company takes the steps needed to determine whether the data reported is correctly associated with the applicant in question.  It is equally important (to employers) to know that your company doing their background checks is thorough - meaning they use the right tools and conduct addition (conditional) searches as may be required based on AKA's (other names) and addresses (disclosed or undisclosed).

It turns out that the right methodology delivers superior results for consumers and employers alike.  The right methodology may cost a little more - and may take a little longer.  But given the stakes, it is best for all concerned (the consumer, employer & CRA).

Visit MyScreeningReport.com for more information about direct-to-consumer employment screening products.

posted @ Tuesday, October 18, 2011 3:11 PM | Feedback (0)

Paying multiple application fees before qualifying for housing is a significant hardship for low income and other hard to place individuals.  Low income housing advocates have long sought a portable background screening reports to lessen the burden on this vulnerable population.

Under the "traditional" tenant screening model, applicants meet with prospective landlords, complete a rental application and pay an application (screening) fee.  The landlord orders a screening report from a consumer reporting agency (CRA).  The CRA returns the background screening report to the landlord, who then decides to accept (the applicant), accept conditionally (e.g. with an increased deposit or cosigner) or deny tenancy.  This process is hard on low-income individuals who may spend hundreds of dollars on application fees, paying multiple times for the same report, before finding a landlord who will accept them.  Once they do, they may lack the funds needed for fees, deposits and other move-in costs.  Additionally, the applicant has no legal right to a copy of background check unless the landlord takes adverse action (denies tenancy or attaches conditions - such as an additional deposit).

The effort to address multiple screening fees and portability dates back to the middle 90's.  More recently, in November 2008, the Spokane Low-Income Housing Consortium (SLIHC) assembled a working group of advocates and CRA's to explore the problem and consider solutions.  There were five tenant screening services represented. 

"We wanted to eliminate the practice of tenants having to pay for screening report after screening report and then not having money for security deposits or first months rent," said Cindy Algeo, SLIHC's executive director.  "It was becoming a barrier to obtaining housing."

After numerous conversations, one company, Seattle-based Moco, Incorporated, took the initiative to create the industry’s first direct-to-consumer (portable) tenant screening report.  Moco, Incorporated Vice President Paul Prudente said the report, which puts prospective tenants in control of their own background checks, is the first of its kind.  "It turns the traditional tenant screening model on its head," Prudente said.  The new product is marketed under the name MyScreeningReport.com® and is available at www.MyScreeningReport.com. 

Under the applicant initiated screening model, the applicant orders, receives, reviews, disputes (if necessary) and finally, shares the tenant screening report with the prospective landlord - in that order.  Under this model, the applicant: 

*      Pays a single screening fee. (payable by credit and/or gift card)

*      Disputes errors (if any) before the report is released (by them) to the landlord.

*      Reviews the content of their screening report with prospective landlords to determine
        whether they qualify under the landlord's rental criteria before paying application fees, deposits, etc.

*      Has the information they need to better manage their affairs.

Note that consumer initiated screening reports do not create an inquiry on the credit report and, therefore, do not impact the applicant's credit score.

The new product is a win for private landlords as well, many of who lack access to quality tenant screening services due to the cost associated with certifying landlords under the traditional model.  Landlord certification is not required under the applicant initiated screening model.  Further, this model expedites the leasing process by giving landlords the information they need when first meeting with prospective tenants.  Tenant screening fees are collected directly from applicants - eliminating the hassle associated with collecting and managing these funds.

For more information or details about this consumer initiated screening report, email info@MyScreeningReport.com or visit www.MyScreeningReport.com®.

posted @ Friday, October 14, 2011 3:18 PM | Feedback (0)

Economic conditions have taken a toll on many prospective residents and increased the risk of default on lease obligations.  The natural tension landlords experience between leasing and background screening is heightened by those same economic conditions. 

Finding the proper balance between occupancy (leasing) and vetting prospective residents is critical under these conditions.  This is especially true for private landlords who tend to be more vulnerable to damage caused by problem tenants and who may lack access to quality screening reports. 

Knowledge is key to successfully navigating these waters.  Tenant screening products empower landlords to qualify more (not fewer) applicants by providing the information necessary to accurately assess risk and establish terms.  Comprehensive tenant screening reports include:

*      Credit Reports:  The devil is in the detail.  Landlords cannot afford to either approve or decline based on score alone.  Derogatory credit may or may not signal increased risk.  A large percentage of bankruptcies, for example, are associated with medical debt.  Those same individuals are often excellent rental risks.  Rental collections or eviction judgments, on the other hand, are clearly red flags.  The detail also reveals positive or negative trends. 

*      Eviction Records Search:  The majority of unlawful detainer (eviction) filings are dropped prior to judgment (for economic reasons).  So relying on the judgment section of the credit report alone is simply not adequate.  A thorough search of all names (including AKA's) and jurisdictions is a critical component of quality tenant screening reports.  A failure to search AKA's and additional jurisdictions as part of the background screening process will result in under-reporting by as much as 50%.

*      Criminal Records Search:  Criminal background checks should examine all names and jurisdictions, and include court records, department of corrections and sex offender registry data.

*      Records Matching:  Common names represent a significant challenge when it comes to criminal and eviction searches.  Evictions records are especially challenging since they include relatively few identifiers.  Name match alone is simply not enough.  Your tenant screening company should do the leg-work necessary to positively match criminal and eviction records returned to the applicant. 

*      Rental References:  Rental references are a critical component of the tenant screening process.  Rent payment history is a big deal and is not generally reflected in the credit report.  Eviction actions (more importantly the reasons for those actions) which have not yet reached the courts will likely surface during reference calls.  The key is to develop a specific list of questions which do not violate fair housing law and seek only objective responses.  Whether you make the calls yourself or outsource them to your tenant screening company, reference calls are crucial to the landlord screening process.

Traditionally, landlords (end-users as described by the Fair Credit Reporting Act - FCRA) undergo an extensive certification process prior to being authorized to order and receive tenant screening reports.  The cost and inconvenience associated with the certification process makes it difficult for private landlords to gain access to quality screening reports. 

Applicant initiated screening products (also known as direct-to-consumer screening reports) solve this problem by putting the applicant in control of their own information.  The applicant orders a background check on themselves and then shares the report with the landlord or landlords of their choice.  This model has several additional benefits.  First of all, the applicant is able to dispute information they believe is being reported in error prior to any impact on their search for housing.  Secondly, the transparency inherent in this process demands that the consumer reporting agency "...follow reasonable procedures to assure maximum possible accuracy..." of the information.  Further, applicants can review their screening report with prospective landlords to determine whether they qualify prior to paying an application fee or holding deposit - saving time and money for all concerned. 

Visit www.MyScreeningReport.com® for more information about direct-to-consumer tenant screening products - ideal for independent landlords.

posted @ Friday, October 14, 2011 1:49 PM | Feedback (0)