HUD Issues Guidance on the Use of Technology in the Screening Process

By Garit Frye, Summer Policy Intern

On April 29^th, HUD published a notice titled “Guidance on Application of the Fair Housing Act to the Screening of Applicants for Rental Housing.” The notice provides information about tenant screening companies, how liability under the Fair Housing Act works, general potential liability issues in the tenant screening process, how technology can pose further issues in the process, and recommendations on how housing providers can ensure a non-discriminatory screening process—both for those using technology in the process and those that do not.

Background on Tenant Screening Companies

Tenant screening companies gather and analyze information about applicants from various sources, then generate a report for housing providers. Those reports often contain a recommendation on whether the housing provider should accept or reject the applicant. The reports can vary depending on the amount of detail, what information is included, and how specific their recommendation is.

HUD notes that tenant screening companies generally use automated software or Artificial Intelligence (AI) in their reporting process. However, many companies often do not disclose how their software works or what functions they perform in the process. The involvement of these systems can range from simply gathering information to determining the criteria for screening reports and generating them itself.

Liability Under the Fair Housing Act

HUD notes that in addition to the Fair Housing Act prohibiting intentional discrimination in providing housing-related services, the Act also prohibits actions with an unjustified discriminatory effect. If an action is found to have a discriminatory effect, it violates the Fair Housing Act if it is either not necessary to achieve a substantial, legitimate, non-discriminatory act or a less discriminatory action could serve the same interest. Importantly for housing providers, the notice states they can be held liable for an action with a discriminatory effect, regardless of whether it was deliberate, how much the housing provider did or did not know about the action, or whether it was done by an agent (whether they had an apparent or actual relationship). Housing providers could be held liable for either intentional discrimination or actions with a discriminatory effect conducted by an automated system or AI at a screening company on their behalf.

In addition to these general liability rules, HUD also provides some of the specific potential causes for liability issues in the screening process under the Fair Housing Act, including:

• Using a protected characteristic or a proxy as a screening criterion;
• Screening applicants in a way that excludes or discourages members of a protected group from applying;
• Applying screening criteria inconsistently across protected groups; and
• Providing more help to applicants with negative records from some protected groups than others.

General Screening Recommendations

The notice provides some general recommendations for housing providers to ensure a non-discriminatory tenant screening process, regardless of whether they are using technology, including:

• Choose relevant screening criteria;
• Avoid screening existing tenants of a property who have lived there without incident;
• Waive screening criteria if they are not relevant to an applicant’s individual circumstances, even if they are relevant in general;
• Prioritize the most relevant records (e.g., recent records versus older ones);
• Disregard records without a negative outcome or if the record does not provide enough information to determine who prevailed;
• Consider all types of relevant information;
• Use only records that match multiple pieces of identifying information and disregard those with only “wildcard” or “name-only” matching;
• Follow the applicable screening policy and disregard records outside the scope of the stated screening policy;
• Avoid asking applicants about any criminal, credit, or housing history that falls outside the scope of the screening policies, additionally consider not asking any questions about their history;
• Be transparent with applicants by systematically providing them with complete, detailed information throughout the application process;
• Give potential applicants a copy of the screening policies or tell them where they can find them;
• Create screening policies detailed enough for an applicant to determine whether they are likely to qualify;
• Give potential applicants information about how evidence of mitigating circumstances can be submitted and will be treated, how to request a reasonable accommodation for a disability, and how to contest an inaccurate, incomplete, or irrelevant record;
• Ensure denial letters contain as much detail as possible as to all the reasons for the denial, including the specific standard(s) the applicant did not meet and how they fell short;
• Attach all records relied on, including any screening reports, to denial letters;
• Include instructions in denial letters on how to submit an appeal if a record is inaccurate, incomplete, or irrelevant; mitigating circumstances exist; or a reasonable accommodation for a disability is needed;
• Provide any information given to applicants (including the denial letter, records used, and screening reports) are easy to understand; and
• Allow applicants to challenge negative information.

In addition to these more general recommendations, the notice provides further recommendations for housing providers using—or considering using—technology in the screening process, including:

• Adopt screening policies that are clear, detailed, and publicly available;
• Using tenant screening services that allow housing providers to customize the criteria, standards, and weights being used—as opposed to an “off the shelf” product—can help ensure screenings conform to their adopted policies;
• When given a report with a denial recommendation, make an independent determination whether the information in the report is disqualifying under their policies;
• When a denial recommendation is not in line with their policies, housing providers should consider contacting the screening company to adjust their future recommendations
• Inquire how a tenant screening company ensures its screenings are accurate and nondiscriminatory;
• Select screening companies that:
  • Offer customizability;
  • Frequently update their data;
  • Monitor for unjustified discriminatory effects;
  • Report clear and specific reasons for denial;
  • Allow individuals to correct inaccuracies;
  • Publicly disclose key details about their screening systems; and
  • Comply with all applicable Federal, state, and local laws.

Lastly, the notice also provides some recommendations on three criteria it states are particularly likely to pose fair housing concerns due to disparities in their measurement and overboard screenings: credit history, eviction history, and criminal records. To avoid these three measures from causing a discriminatory effect in the screening process, HUD recommends housing providers:

• Avoid denials based on an applicant’s credit score in circumstances when the applicant’s financial background has especially little relevance;
• Admit applicants so long as they do not have a negative credit history;
• Do not rely on eviction records that are old, incomplete, irrelevant, or where a better measure of an applicant’s behavior is available, and disregard any record if that information is known before a screening;
• Do not deny housing to applicants based on eviction proceedings where the tenant prevailed, a settlement was reached, or the matter was dropped;
• When formulating screening policies and reviewing applications, account for the fact that overboard criminal records screenings do not differentiate between offenses based on their nature, severity, or how long ago they occurred; those that consider records that did not result in a conviction; and those that do not provide an opportunity for the applicant to provide evidence of rehabilitation or other mitigating factors;
• Do not take into account criminal activity that was due to an underlying experience of domestic violence, dating violence, sexual assault, or stalking; and
• Make exceptions to admission policies and disregard certain criminal records if an individual’s disability makes it unlikely that they would re-offend.

To read the full notice, please visit here.