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Companies that provide background screening services for rental properties could be subject to greater scrutiny as federal agencies take actions to eliminate a name-matching practice that the Consumer Financial Protection Bureau said has undermined the housing market recovery.
The CFPB said in an advisory opinion today that consumer reporting companies, including tenant and employment screening companies, violate the law “if they engage in shoddy name-matching procedures,” including a practice that searches for a credit record using only the name.
“Regulators are concerned about the significant harms caused by false identity matching, where an applicant is disqualified from rental housing or a job based on having the same name as another individual with negative information in their credit history,” the CFPB said in a statement.
The CFPB’s advisory opinion affirmed that matching consumer records only by matching names is illegal under the Fair Credit Reporting Act. The CFPB said “careless background screening practices” can contribute to unemployment and housing instability.
“For Black and Hispanic communities, who were disproportionately affected by the pandemic, the need for accuracy is even more acute,” the CFPB said. “The risk of mistaken identities from name-only matching is likely to be greater among Hispanic, Black, and Asian communities because there is less surname diversity in those populations compared to the white population.”
The CFPB said the majority of landlords and employers rely on tenant screeners and employment background checks when deciding whether to accept a rental application or make a job offer. Some of these companies are subsidiaries of nationwide credit reporting agencies, while others are newer entrants to the background screening industry, the CFPB said.
Name-only matching involves using only first and last name to determine whether information relates to a particular consumer, without using other personal identifying information, such as address, date of birth or Social Security number. Because of the scale of background screening, the CFPB said that even low error rates could harm a significant number of consumers.
“When background screening companies carelessly assign a false identity to applicants for jobs and housing, they are breaking the law,” CFPB Director Rohit Chopra said in the statement. “No one should lose out on a job or an apartment because of sloppy and illegal matching. Error-ridden background screening reports may disproportionately impact communities of color, further undermining an equitable recovery.”
The advisory opinion said consumer reporting companies must use reasonable procedures to assure maximum possible accuracy. The CFPB pointed to federal court findings that said name-only matching procedures do not assure maximum possible accuracy. Because some procedures involving multiple identifiers, such as name combined with a date of birth, could also lead to cases of mistaken identity, the CFPB said companies would not have a safe harbor if they used insufficient procedures.
The CFPB said it will work with the Federal Trade Commission to address illegal conduct in the background screening industry. Companies that violate the Fair Credit Reporting Act could be liable for significant civil penalties, restitution for victims, damages, and other relief, the CFPB said.
“Today’s advisory opinion reaffirms that shutting people out of housing and other opportunities based on careless errors isn’t only wrong – it’s illegal,” Federal Trade Commission Chair Lina M. Khan said in the statement. “The FTC strongly supports this longstanding interpretation and stands ready to work with the CFPB to protect American families.”
