Helping consumers with credit report errors to obtain corrections and compensation under the law. | Credit Report Law Group.
A concerning phenomenon is emerging in the realm of tenant-landlord relationships, raising a bevy of potential Fair Credit Reporting Act (FCRA) issues. As reported by Curbed, landlords are now increasingly relaying tenants’ rent payments to credit reporting agencies. As an attorney focusing on credit reporting cases, I’m concerned about the potential implications of this new phenomenon for tenants and consumers.
As I’ve written about previously in my column, this expansion of the realm of credit reporting has been touted by some as a positive development. “Credit-invisible” consumers sometimes find themselves in a cyclical problem: They have no credit history, so they struggle to demonstrate their creditworthiness to lenders and financial institutions, and as a result, they are unable to build a credit history. Practically speaking, they are unable to obtain the very credit cards (or other personal loans) that are needed to qualify for those very types of credit. This cyclical issue has been cited to underscore the importance of alternative methods for assessing creditworthiness, in order to ensure that everyone has a fair opportunity to participate in the consumer lending and broader financial system. The inclusion of timely rent payments has thus been cited by some as one such positive measure to promote financial inclusion.
However, these proponents have not addressed the potential repercussions faced by tenants who struggle with rent payments. This problem is especially acute when rent payments are legally withheld or otherwise withheld in protest of poor living conditions. According to Curbed, landlords are increasingly using the threat of damaging tenants’ credit scores as a collection tool, or as a tool to discourage rent protests, particularly in the wake of pandemic-era eviction moratoriums and stronger rent-protection laws passed in 2019. Landlords are apparently seeking alternatives to housing court for rent collection, perhaps because housing court is too arduous and costly.
In the past, tenants may have been offered credit reporting as a voluntary option, but now, some landlords are unilaterally enrolling tenants. While it is true that reporting on-time rent payments can benefit low-income or otherwise credit-invisible individuals by helping them build credit, negative credit reports can have devastating consequences for tenants, affecting their ability to secure leases, buy cars, obtain mortgages and access loans. Adverse credit reporting thus potentially discourages tenants from withholding rent when it is their only means of getting necessary repairs done.
A related issue, of particular concern to my law office, is the accuracy of rent reporting by landlords. My law office focuses on consumer advocacy, and we pay particular attention to protecting the rights and interests of individuals under the Fair Credit Reporting Act (FCRA). Through the dispute process and litigation where necessary, our attorneys safeguard consumers from erroneous information, including not only identity theft (i.e., unrecognized accounts on consumers’ credit reports) but also errors in payment history on legitimate accounts. We’ve seen manifold violations of the FCRA not only by the credit reporting agencies, but also by some of the world’s largest financial institutions, despite their having deep legal benches and large compliance departments. The prevalence of these errors has been confirmed by government agencies including the FTC.
If large lenders, with gargantuan market caps and thousands of employees, are nonetheless known to submit inaccurate information, certainly landlords—corporations with an infinitesimally smaller market cap (or, in some cases, private individuals)—who engage in credit reporting will end up committing FCRA violations by reporting inaccurate information. This is especially true in light of the concerns highlighted by Curbed that credit reporting could be used as a coercive tool to punish tenants for legitimate exercises of their extensive tenants’ rights. In that case, landlords may be knowingly, willfully or recklessly violating the FCRA by disregarding the tenant’s rightful basis for withholding rent.
Not only are these large financial institutions known to report inaccurate information, but they are also known to mishandle consumer disputes. If large financial institutions have difficulty handling consumer disputes, surely small-scale landlords will struggle as well. For tenants, disputing a late-payment report may not be straightforward, as tenants may need a court judgment in their favor, which can take years to obtain. This further complicates the dispute submission and investigation process and invites potential FCRA violations. It remains to be seen if courts will say that a landlord’s duty to investigate an FCRA dispute, based on a rent protest, will involve investigating the legal or factual basis for the rent protest itself.
So suffice it to say that the recent trend of landlords unilaterally enrolling tenants in credit reporting programs raises a bevy of potential FCRA issues. As Curbed acknowledges, while credit reporting can benefit some tenants, it also poses risks to those facing rent disputes. But the converse is also true. While credit reporting may temporarily benefit landlords, in a world of robust rent protections, by giving them rare leverage with which to encourage tenants to pay rent, engaging in credit reporting may also end up hoisting landlords by their own petard if they are slapped with FCRA lawsuits by savvy tenants or tenants’ rights organizations. Tenants, tenants’ rights organizations, but also landlords would be well advised to consult with capable FCRA law firms in light of these issues.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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