FTC settles claims alleging tenant background screening company failed to use reasonable procedures to assure the accuracy of its reports

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The Federal Trade Commission recently announced that it settled an action it filed against AppFolio, Inc. (“AppFolio”), regarding alleged unfair or deceptive acts or practices, in violation of Section 5 of the FTC Act, 15 U.S.C. § 45, and violations of multiple provisions of the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. §§ 1681– 1681x, in connection with AppFolio’s sale of tenant background screening reports (Screening Reports) to landlords and property management companies.

In its complaint, the FTC alleged that AppFolio failed to implement reasonable procedures to assure the accuracy of the criminal and eviction records it obtained from a third party vendor before including them in Screening Reports.  Instead, AppFolio generally relied on the vendor’s procedures, even though it had limited knowledge of what those procedures were, and despite the vendor’s express disclaimer as to the accuracy of the data it provided.  There were also “multiple instances” in which AppFolio provided Screening Reports that included eviction records and non-conviction criminal records that were more than seven years old, in violation of Section 605(a) of the FCRA, 15 U.S.C. § 1681c(a).

The FTC argued that the FCRA precludes sellers of Screening Reports from including criminal or eviction records without following reasonable procedures to: (1) assess whether the name, date of birth, and other identifiers (“Identifiers”) contained in records reasonably matched the applicant; (2) assess whether there were internal inconsistencies in the Identifiers, or results that clearly included information on multiple individuals; (3) assure that the records accurately reflect the disposition and/or offense name and type; and (4) prevent the inclusion of multiple entries for the same criminal or eviction action in the same Screening Report.  As a result of its failure to implement these procedures, the FTC alleged that AppFolio regularly provided Screening Reports containing records pertaining to other individuals – including individuals with one or more inconsistent Identifiers – as well as criminal or eviction records that were missing accurate disposition information, contained multiple entries for the same charge or action, and/or which were more than seven years old.  The FTC further alleged that AppFolio failed to make any changes to its practices or procedures after receiving consumer disputes related to these issues, and claimed that its failure to implement and follow reasonable procedures may have led to the denial of housing or other opportunities to consumers.

The settlement requires AppFolio to pay a $4.25 million monetary penalty, prohibits AppFolio from providing Screening Reports containing non-conviction criminal or eviction records older than seven years, and requires it to maintain reasonable procedures to ensure the maximum possible accuracy of the information included in its Screening Reports.

The FTC’s settlement with AppFolio comes less than two months after it settled similar claims against another tenant background screening company, highlighting the FTC’s concern in this area.  Although Screening Reports are “consumer reports” that are subject to the FCRA, there are no standards or protocols – like those applicable to the credit reporting industry – regarding what (and how) information should be searched, updated, and reported.  Moreover, due to the general ease of accessing online court records – and as a result of the constraints placed on the three major nationwide consumer reporting agencies by the 2017 settlement with several states’ attorneys general, under which they agreed to require either a Social Security Number or date of birth to match a record to a particular consumer’s credit file – the area is dominated by numerous small entities (like AppFolio), which use varying criteria and (mostly automated) processes to search and identify criminal and eviction records associated with an individual applicant.

While the FCRA provides little guidance, entities offering background screening services should review these agreements for insight as to what is required to satisfy the “reasonable procedures” requirement and avoid potential regulatory action.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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