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How Tenant Screening Services Disproportionately Exclude Renters of Color from Housing

The rental market has experienced many swings over the past two and a half years. We’re seeing some relief from rent increases, but the risk of rental instability may be growing. Earlier this year, almost 40 percent of mom-and-pop landlords surveyed reported tightening their screening criteria—a move that could reduce housing access for many, particularly families of color.

How landlords screen tenants

For most property owners and managers, screening prospective tenants is a routine part of the application process, particularly in tight housing markets with many applicants. When surveyed, almost 18 percent of landlords said they reject more than 75 percent of their applicants and 56 percent reject at least 25 percent of their applicants. Close to 90 percent of landlords reported they checked for previous evictions, income, and job history and rental history, credit scores, and criminal backgrounds when making their decisions.

Landlords increasingly capture these data from screening services, which typically cost $40 per applicant and are most often paid by renters (PDF). Because technology has made private data more available and the rental affordability crisis has worsened, third-party screening services have become a billion-dollar industry.

The disproportionate effects of screening

These screening criteria disproportionately hurt people of color because of various structural factors.

More than half of landlords surveyed reported being most concerned about a previous eviction. Evidence shows households of color–especially Black women–are evicted at twice the rate of white renters. Discrimination and structural barriers to higher wages, combined with rising rental prices, contribute to more than 60 percent of Black women renters being cost burdened, which puts them at higher risk of eviction.

Credit scores were another important factor for just under 40 percent of landlords surveyed. Communities of color are more likely to have lower credit scores because historically, they’ve been denied affordable financial services and wealth-building opportunities. Although credit scores on average rose during the pandemic, racial credit score gaps didn’t narrow. Standard credit scores also don’t account for data points that could make them more racially equitable, such as cash flow, rent and utility payments, or rental payment history. But estimates suggest the consumer reporting system only covers rental payment history of between 1.7 and 2.3 percent of US renters (PDF).

Criminal background checks are another commonly used criteria that can reinforce discrimination. Black people are disproportionately incarcerated in the US, and the impact of justice system involvement lasts long after incarceration. A study of how residents’ criminal backgrounds contribute to housing outcomes found that 11 of the 15 criminal offense categories had no significant impact on housing outcomes. It also found the effect of a previous criminal offense on housing outcomes declines overtime, with misdemeanors and felonies becoming insignificant after two and five years. As the US Department of Housing and Urban Development has said, criminal history is not a good predictor of housing success, yet landlords frequently employ it.

Reports can be inaccurate

Hundreds of lawsuits have been filled against screening companies for incorrect reports, some resulting in housing insecurity for prospective renters. The challenges of reports are linked to issues with the underlying eviction filing data, which are of notoriously low quality, with inconsistencies and inaccuracies in who’s named on an eviction filing, the outcome of the case, and the relevance of the action. Thus, screening companies may be pulling reports of maliciously filed evictions that are linked to people with common names.

And importantly, the data captured are only for eviction filings, meaning that records will appear the same for renters who ultimately won their cases and those that were evicted. An analysis of Massachusetts eviction records found that Black women were more likely to have an eviction filing that ultimately resulted in dismissal, making them more prone to be affected by such practices.

The Fair Credit Reporting Act outlines regulations designed to give applicants a chance to explain or dispute negative information, but it’s unclear how often that happens. According to the Consumer Finance Protection Bureau (CFPB), renters often aren’t given the opportunity to explain information on their reports, and in a survey, only 4 in 10 landlords said they allow applicants to explain any negative information in the report. In response to coverage of these inaccuracies, the CFPB clarified that these screening companies shouldn’t use “name only” matching services that are more likely to result in inaccuracies.

Shifting practices in the wake of COVID-19

As competition in the rental market climbed during the pandemic, many landlords reported tightening screening criteria. Corporate ownership of rental stock may have increased during the pandemic as smaller landlords struggled and multifamily unit prices dropped, and corporate owners are more likely to use automated systems.

We also saw widespread insecurity for renters during the pandemic. Around 2.5 million households received federal emergency rental assistance (ERA), and as many as 5.8 million were behind on rent during the past two and a half years. Resulting eviction filings, missed rental payment, or ERA use may be accessible to screening services or landlords and used to deny renters housing. This could exacerbate housing disparities that had already worsened during the pandemic because Black and Hispanic renters reported being twice as likely to be behind on rent compared with white households in 2021, and Black renters made up 46 percent of ERA recipients. The disproportionate effects of the pandemic have been far reaching, but the implications for tenant screening could amplify them.

Strategies to promote housing access

The more evidence we have that underscores the harms of screening practices, the more states and cities have moved to enact protections for renters. Local agencies and organizations have also worked with landlords to develop practices to support tenants. These policies and practices include the following:

  • Encourage positive screening criteria
    Using certain screening criteria can bring risks, but leaving it up to landlords can also be detrimental. Landlords report intentionally using certain criteria as discrimination proxies, and others report relying on arbitrary and subjective criteria.

    One solution is to focus on the positive behaviors that have a more direct connection to rent performance, such as rental payment history. Currently, positive rent payment reporting can be difficult to access, but there’s been movement to include history in credit scores. Fannie Mae recently launched the multifamily Positive Rent Payment reporting pilot program, which allows multifamily property owners to share positive rent payment information with major credit bureaus. This can help renters improve or build credit that can make renting and homeownership more accessible.
  • Give renters more insight into their screening process
    Tenants have the right to explain or dispute negative information in a screening report that may have contributed to their denial, but enforcing this rule can be difficult. Recognizing this issue, local leaders have passed legislation to give renters more insight. Philadelphia’s Renters’ Access Act (PDF) mandates that landlords share screening criteria before accepting an application. They also must provide a written justification for a denial along with the screening report, and renters have up to seven business days to respond.
  • Gather more evidence on the relevance of screening criteria we have
    We have discussed how harmful these criteria can be, but more research is needed to fully understand their efficacy and alternative criteria. Important research questions include the following:
    • What indicators correlate strongly with or predict future rental delays?
    • Does a previous eviction predict a future one, when controlling for contributing market factors? What should look-back periods be?
    • How can screening criteria protect the financial needs of smaller and mission-based landlords while ensuring housing access for renters, particularly those who faced a setback because of the pandemic?
  • Regulate and limit screening criteria
    Without clear evidence that the screening criteria offered by third-party screening companies predict future rental payment, it seems wise to regulate their use. Several localities, including Newark, New Jersey; San Francisco, California; Washington, DC; and Seattle, Washington, have passed legislation that bans the review of criminal history in the entire tenant-screening process or only permits it later in the application process. The effects of these policies are still being evaluated, but study of “ban the box” legislation in hiring practices has shown mixed results.

    A few states, including Oregon and California, have passed eviction sealing legislation. These policies typically require courts to seal records in the absence of a final eviction judgement or after a few years in the case of an eviction ruling. Because of the newer nature of these policies, we are still waiting for full evaluation studies that show their impact.