CFPB Shifts Onus of Apartment Fraud Onto Owners
Columnist Lew Sichelman on how recent advisories impact landlords during a time of rampant fraud.
The Consumer Financial Protection Bureau has fired a shot across the bow of the credit bureaus that landlords use to vet applicants, warning to landlords to address inaccurate background reports and “sloppy” credit file sharing practices.
The CFPB didn’t mention fraud in its guidance. But property managers could be on the hook if a litigious prospect finds that the credit agency they hired was not performing its role properly. The manager, someone might claim, is liable because they should have known about the agency’s shoddy practices.
The fair credit reporting advisories
In calling out credit repositories, the consumer watchdog agency issued two advisories. One reminds providers that their reports must be complete, accurate and free of outdated, sealed or expunged information that has been legally excluded from public access. The other notes that people are entitled to receive all the information contained in their files at the time they request it.
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Early last year, the CFPB and Federal Trade Commission launched a public inquiry asking consumers to report their experiences with the background checks used to screen potential tenants for rental housing. More than 600 comments were received, mostly from renters who complained that they failed to receive adverse action notices.
Many also noted that their files were riddled with difficult-to-correct errors that have had decades-long impacts on their ability to obtain housing.
In its file disclosure advisory, the CFPB noted that applicants only need to make a request for their report and to provide proper identification to have it be disclosed. Applicants do not need to use industry jargon or specific language to be provided the file.
According to the rules, information must be provided in a format that will assist people in identifying inaccuracies. Applicants have the right to dispute any incomplete or inaccurate information and to understand where they are being impacted by adverse information. Sources must also be provided, including both the original sources and any other source of information thereafter.
Fraud on the upswing
The advisories come at a time when con artists turning up everywhere in the apartment sector. A report from the National Multifamily Housing Council found that seven out of 10 owners, developers and managers saw an increase in fraudulent tenant applications last year.
According to the report, fewer than 10 percent of the 75 respondents had not experienced any kind of rental application scam in the previous 12 months.
Generally, most multi-housing professionals are finding some kind of misrepresentation. Some 84 percent said they are seeing fake pay stubs, employment references or other income documentation. And 70 percent said some would-be tenants are using fake IDs or someone else’s to gain occupancy.
On average, those who reported an increase in fraud said it was up 40 percent and nearly three out of four said the increase has contributed to the non-payment of rent. The respondents, all members of the NMHC or the National Apartment Association, reported that fraud was involved in some 29 percent of their evictions.
NMHC called the findings “staggering” and said that the growing incidences of fraud are contributing to both rental increases and the rising number of evictions.
