Skip to main content
Menu Icon Menu Icon

InfoBytes Blog

Financial Services Law Insights and Observations


Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Tenant screening company subject to FHA


    On July 26, a federal judge in the U.S. District Court for the District of Massachusetts ruled that a tenant screening algorithm is subject to the Fair Housing Act, including the FHA's ban on racial discrimination in housing. The court held that even though the company is not itself is not a landlord, as property owners allegedly relied solely on the company's decisions to deny prospective renters' applications, the company was effectively granting it authority to make housing decisions.

    Plaintiffs alleged in an amended complaint that a tenant-screening service operated by the defendants violated the Fair Housing Act, 42 U.S.C. § 3604 and Massachusetts anti-discrimination and consumer protection laws. The Plaintiffs claimed that the services discriminate against holders of rental vouchers and applicants of certain races and income classes, in violation of the FHA, resulting in less housing availability, less favorable terms and conditions in rental agreements, and discriminatory provision of services in connection with housing, in each case based on race and national origin.

    Defendants, in their respective motions to dismiss, argued that the FHA does not apply to a tenant-screening service, such as the defendant, because the service does not “make housing decisions.” In denying the motion to dismiss on this count, the court reasoned that the FHA provisions do not limit liability to people or entities that “make housing decisions” but rather “focuses on prohibited acts,” and reiterated that the Supreme Court has already held that “language of the Act is broad and inclusive.” The court observed that while housing providers are the typical target of FHA claims, other entities are often held liable under the Act. The court reasoned that the application of the FHA “beyond direct housing providers” is a “logical extension[] which effectuate[s] the purpose of the FHA,” as “a housing provider could simply use an intermediary to take discriminatory and prohibited actions on its behalf and defeat the purpose of the FHA.”

    Massachusetts antidiscrimination laws, among other things, make it unlawful to discriminate in the “terms, conditions, or privileges” of the sale or rental of housing or provision of such services “to aid, abet, incite, compel or coerce the doing of any of the acts forbidden under this chapter,” which includes Sections 4(6) and 4(10). Plaintiffs allege that the discriminatory rental application process was facilitated by the tenant score produced by the defendants. The court held that the chapter is construed broadly and reiterated the Massachusetts Supreme Court finding that defendants who play a role in the tenant selection process may be held liable under certain sections even if they only “aid[ed] or abet[ted]” a violation of Section 4(10). As such, the court held that the plaintiff’s claims for disparate impact discrimination for race or source of income under both FHA and Massachusetts antidiscrimination laws were sufficient to survive the motion to dismiss.

    Courts Federal Issues FHA HUD CFPB Consumer Finance Landlords Massachusetts Discrimination

  • CFPB, FTC to conduct inquiry into high housing costs for renters

    Federal Issues

    On July 25, CFPB Director Rohit Chopra shared prepared remarks for the Community Table on a White House Blueprint for a Renters Bill of Rights to address high housing costs for renters. Chopra raised concerns about corporate investors imposing high rents and charging renters with what the director described as “junk fees and other aggressive tactics.” He mentioned that corporate investor owners, including private equity firms, are more likely to evict tenants, even when controlling for other factors, and that corporate investor ownership of rental units has risen to over 45 percent. Chopra also emphasized the growing use of artificial intelligence and social scoring in the rental process, stating that such changes can lead to rent hikes and denials of housing due to an algorithm's definition of "high-quality tenants." The remarks suggested that tenants are not being given appropriate opportunity to correct inaccurate information in their background checks, despite the legal requirement for companies to inform consumers when using such information for adverse rental decisions. The speech also stressed the CFPB's commitment to identifying inaccurate AI and illegal practices that lead to misleading data and clarified that name-only matching, a common but illegal practice in screening, can result in inaccurate information, disproportionately affecting individuals with common last names. To address these issues, Chopra announced a joint inquiry with the FTC, to collect feedback from the public about their experiences with tenant screening.

    Federal Issues CFPB FTC Consumer Finance Artificial Intelligence Landlords

  • CFPB highlights tenant background check problems

    Federal Issues

    On November 15, the CFPB issued two reports discussing issues related to the tenant background check industry. The Consumer Snapshot: Tenant Background Checks bulletin outlines difficulties that prospective renters encounter in connection with a landlord’s use of a tenant screening report, based on complaints submitted to the CFPB and CFPB-commissioned qualitative research. The Tenant Background Checks Market Report is based on data from industry research, legal cases, academic research, the CFPB’s market monitoring, and other third-party sources, and focuses on publicly available information from a sample of 17 tenant screening companies that offer services to landlords across the U.S. According to the Bureau, the reports describe how errors in these background checks contribute to rising costs and barriers to quality rental housing. The Bureau’s analysis of over 24,000 complaints highlights renter challenges associated with the industry’s failure to remove wrong, old, or misleading information or to conduct adequate investigations of disputed information.

    Highlights of Consumer Snapshot: Tenant Background Checks include:

    • More than 17,200 of the approximately 26,700 complaints related to tenant screening received by the Bureau from January 2019 through September 2022 were related to incorrect information appearing on a prospective renter's report.
    • Renters who submitted complaints about tenant screening reports described difficulties finding stable and secure housing due to negative information that was inaccurate, misleading, or obsolete.
    • The experiences of most applicants who encountered inaccurate or misleading information about evictions and rental debt in their reports indicate that the presence of eviction records has a high likelihood of leading to outright denials of rental housing.
    • Inaccuracies in criminal records may have an outsized impact on Native American, Black, and Hispanic communities as they are disproportionally represented in the criminal justice system.

    Highlights of the Tenant Background Checks Market Report include:

    • The coverage of rental payment history in the consumer reporting system is estimated to range between 1.7 percent to 2.3 percent of U.S. renters.
    • Approximately 68 percent of renters pay application fees when applying for rental housing, which are often used to cover the cost of tenant screening.
    • Market incentives generally value comprehensiveness of derogatory information at the expense of accurate information.
    • There may be a significant possibly that tenant screening reports overstate the risk of renting to any given applicant.

    Federal Issues CFPB Consumer Finance Consumer Complaints Landlords Dispute Resolution

Upcoming Events