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July/August 2011 Issue
It's been a busy summer in the resident screening industry. In addition to the seasonal increase in leasing activity, new legislation with a significant impact on resident screening and the multifamily industry came into effect this July. We've been receiving many questions regarding the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Apartment firms are seeking clarification on potential compliance obligations brought forth by the Dodd-Frank Act's amendments to the Fair Credit Reporting Act (FCRA). In this month's newsletter we will summarize the Dodd-Frank Act, introduce the Consumer Financial Protection Bureau, and review compliance obligations for adverse action procedures for multifamily resident screening.
The Dodd-Frank Act's stated aim is "to promote the financial stability of the United States by improving accountability and transparency in the financial system" (H.R. 4173). This act changes the existing regulatory structure by amending existing legislation, merging or creating new agencies and streamlining the regulatory process. Although the Dodd-Frank Act is focused primarily on banking and financial institutions, one section that focuses on consumer credit and protection extends to the multifamily industry.
The Consumer Financial Protection Bureau (CFPB) was established by the Dodd-Frank Act and commenced operations on July 21, 2011. This consumer bureau is a federal agency whose mission is to give consumers the information they need to understand the terms of their agreements with financial companies and enforce consumer protection laws in the US. Since the multifamily industry deals with consumers and credit reports, we will be watching further laws and regulations from this bureau that may impact the resident screening process.
Effective July 21, 2011, section 1100(f) of the Dodd-Frank Act amends the Fair Credit Reporting Act (FCRA) to require the disclosure of each consumer's credit score when adverse action is taken based in whole or in part on a numerical credit score. Apartment firms that use a numerical score when evaluating rental applications must adhere to these, and in some cases, other additional compliance obligations as a result of the Dodd-Frank Act. Further, when issuing adverse action letters, landlords must now provide each applicant with specific reasons why they were declined or conditionally approved (NAA/NMHC).
RentGrow, like many screening companies, has developed an applicant decision model that does not utilize a traditional "credit score" (aka Beacon score or FICO score) as defined in the Dodd-Frank Act. RentGrow uses a proprietary scoring model that includes various data points including the credit report, rent to income ratio, civil court records, criminal records, and rental payment history records to evaluate an applicant and make a rental decision. Our model does not involve a "credit score" as defined in the act and is therefore outside the scope of this disclosure requirement.
Further, RentGrow's system generates adverse action letters that list specific reasons why each applicant was declined or approved with conditions, to assist with FCRA and Dodd-Frank compliance. Each time an applicant is declined or conditionally approved with the RentGrow platform, a letter can be generated containing the required disclosures.
RentGrow will continue to watch legislation surrounding the Dodd-Frank Act to help keep our customers in sync with existing and new compliance measures.
Since the type of credit scores used by resident screening providers are not all the same, we encourage apartment firms utilizing other screening systems to discuss compliance obligations with their provider to determine the best course of action.
This newsletter is for informational purposes and should not be construed as legal advice. Consult an attorney for questions regarding legal and compliance matters.
© 2011, RentGrow, Inc., Resident Screening Experts. A Yardi Company. Sign up to receive "In the Know". For permission to reprint this article please send your request to newsletter@rentgrow.com.
If you have additional questions about other aspects of your resident screening strategy you can contact RentGrow at 1-800-RENTGROW (1-800-736-8476) or visit our website at http://www.rentgrow.com. | 
