Landlords beware. Apartment companies supplying the rent payment histories of their residents to tenant screening companies are now subject to new liabilities and responsibilities that may be placing into question their very participation in what is essentially a voluntary practice.
Under the final rule of the Fair and Accurate Credit Transactions (FACT) Act of 2003, “data furnishers” are required by the Federal Trade Commission to establish and implement reasonable written policies and procedures that: (1) ensure the accuracy and integrity of furnished information to consumer reporting agencies (CRAs); and (2) allow consumers to formally dispute directly with the data furnisher the correctness of certain information that is furnished about them to CRAs. The new regulations also spell out severe civil penalties for data furnishers who are not in compliance. The new requirements under the final rule came into effect on July 1, 2010.
“Companies that are reporting the consumer data do not know the rules have changed and that there is now more work and more liabilities involved in reporting consumer credit histories,” warns Dennis Smilie, president of Multifamily Solutions, a technology consulting company. “Owners are considered data furnishers under the law if they provide the rent histories of their residents to the credit reporting agencies of any kind.”
Only about five to eight percent of apartment management companies furnish rent payment history data to credit bureaus or tenant screening companies, says Smilie. Before the new rule came into effect, “owners and operators supplying this information did not have the obligations regarding accuracy and reporting” that they have now, he points out.
The FACT Act amended the Fair Credit Reporting Act (FCRA) of the 1990s. FCRA was amended to make sure the information reported to credit bureaus was accurate, and it established liabilities for the furnishers of the consumer credit information, says attorney Michael Saltz, partner at Jacobson, Russell, Saltz & Fingerman LLP. “With this new regulation in place, the onus for compliance is on the landlord, not the tenant screening company, because under the law, tenant screening companies are considered credit bureaus,” says Saltz.
Under FCRA, data furnishers have always had the obligation to provide correct information. What is new under the FACT Act, explains Saltz, is the duty on the part of data furnishers to have written policies and procedures in place; periodic audits to review the established policies and procedures; and updates on reported information. “You cannot report the information and leave it at that. You have to keep updating the information,” says Saltz. “The requirements are specified in incredibly generic and general language in all the regulations that I have seen,” Saltz adds.
The credit reporting system is based on companies voluntarily providing information to credit bureaus on a voluntary and unpaid basis. But the new regulations may discourage companies from participating in this system, suggests Saltz. “If you own a small apartment, you are held to the same standard, and have the same expense and record keeping obligations, as Bank of America. As a result, this discourages the smaller businesses from volunteering credit information because of the sheer expense and exposure of being able to participate,” says Saltz.
Companies that still want to continue to furnish tenant credit histories will now need to hire legal counsel to help them draft the policies and procedures, says Smile. As to whether apartment companies should even continue to participate in reporting tenant histories to credit agencies, “At this point, my advice is not to bother,” says Saltz. “The risks far outweigh any rewards for landlords to report their tenants to credit bureaus.”
One of Saltz’s cases was filed in September 2000 against an apartment owner who made a truthful report on a tenant who owed $3,000 in rent. Ten years and more than a $1 million in fees later, the case is still ongoing, he says.
On the other hand, perhaps one benefit to property owners of participating in the credit reporting system is that for residents to know their credits can be damaged provides an incentive for them to work hard to pay their rent. In this regard, if property owners really want to report rent non-payment, one way to do so is to seek a judgment against the tenant in court, advises Saltz. “That allows the credit bureau to pick up the judgment so the landlord is not the supplier of the information,” he says.
Landlords may have to look at such alternatives to being a data furnisher to credit reporting bureaus. The present laws and regulations are not likely to go away, in Saltz’s opinion, and “if anything they are likely to become more onerous. We are speaking of slippery slopes. This is where it starts.”