90% of landlords say they always run a credit and criminal background check on their prospective tenants. Poor credit is one of the legal reasons to reject a renter’s application.
The renter background check helps ensure you’re getting the best tenants. You rely on this information and expect it to be accurate.
Two bills in Congress would change the information you get in a renter’s credit report. The Disaster Protection for Workers’ Credit Act of 2020 and the HEROES Act would change credit reporting in response to the COVID-19 national health emergency. Find out what’s in these bills and how they could affect your tenant screening process.
The Disaster Protection for Workers’ Credit Act of 2020 and the HEROES Act
Two versions of credit reporting reform are currently before Congress. Legislators first started considering these reforms in a stand-alone bill called the Disaster Protection for Workers’ Credit Act of 2020. Similar reform provisions are also included in the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act.
Disaster Protection for Workers’ Credit Act of 2020
Senator Brian Schatz (D-HI) and two other senators sponsored the Disaster Protection for Workers’ Credit Act of 2020 (S.3508). The bill was read before the Senate on March 17, 2020. The senators referred it to the Committee on Banking, Housing, and Urban Affairs. It has not yet passed out of committee.
The companion bill in the House of Representatives, also titled Disaster Protection for Workers’ Credit Act of 2020 (H.R.6370), came before the House on March 23, 2020. Representative Brad Sherman (D-CA) sponsored the bill with 14 other representatives. The representatives referred the bill to the House Committee on Financial Services. The bill is still in committee.
HEROES Act
Representative Nita Lowey (D-NY) and 11 other representatives sponsored the HEROES Act (H.R.6800). It came before the House on May 12, 2020. The legislation contains a wide range of provisions intended to address the continuing COVID-19 pandemic. The changes to negative credit reporting are in Section 110401.
The HEROES Act passed the House on May 15, 2020. It then moved to the Senate where it received two readings. The Senate Committee on Small Business and Entrepreneurship held hearings on the bill on July 23, 2020. Republican senators blocked a vote by the full Senate. Negotiations between Democrats and Republicans have stalled.
What the Legislation Would Do
The Disaster Protection for Workers’ Credit Act would amend the Fair Credit Reporting Act (FCRA). It would prohibit negative credit reporting during the COVID-19 outbreak period. The bill defines this period as the later of:
- 120 days after enactment of the bill
- 120 days after the Secretary of Health and Human Services announces the end of the COVID-19 public health emergency
The act extends this protection to other major disasters, like a flood, tornado, or wildfire.
In addition, consumers can request to have negative credit information deleted from their credit report. Consumers can request a free credit report or score at any time during the covered disaster period and for a year after the disaster period ends.
The HEROES Act includes essentially the same provisions. The HEROES Act also bans reporting medical debts that were a result of treatments for COVID-19.
How These Changes Would Affect Your Renter Background Check
Keep in mind that neither of these bills has passed into law yet. If one of them is enacted, though, it will have a big impact on how landlords can run a renter background check.
You depend on a credit score or report to be an accurate reflection of your prospective tenant’s credit history. The changes proposed in the Disaster Protection for Workers’ Credit Act and the HEROES Act would make it harder to know if you’re getting a complete picture of someone’s credit.
First, credit reporting agencies (CRAs) wouldn’t be allowed to report negative credit information that occurred during a covered disaster period. In the case of information like bankruptcies, for example, it is difficult to determine if the bankruptcy was a result of something that happened during the disaster period or not.
To address this problem, both pieces of legislation require the Consumer Financial Protection Bureau to create a website for consumers to report economic hardship that resulted from the covered disaster. CRAs would then need to check the site weekly and delete any negative consumer information. Consumers would only be reporting economic hardship, though, and not specific events. The CRAs would still need to decide if specific pieces of negative credit information were a result of the covered disaster.
Second, CRAs wouldn’t be allowed to report negative information, but they would still be reporting positive information. If a prospective tenant made payments on a credit card balance in some months but not in others, the positive information would appear on the credit report without the negative information.
Finally, fear of the consequences of non-compliance with the new regulations would likely cause CRAs to err on the side of caution. They might remove more negative credit information than required just to be safe.
How to Continue Effectively Screening Your Renters
If the Disaster Protection for Workers’ Credit Act or HEROES Act becomes law, you will still need an effective way to do a renter background check. One workaround strategy would be to raise your target credit score. You know that credit scores are likely to be inflated. Requiring a higher score takes this inflation into account.
An even better solution is to use a property management company. A professional property management company will handle your tenant screening process for you. You can be sure that the screening process will adapt to any changing legislative requirements and bring you quality renters.
If you’re ready to take the hassle out of your renter background check process, contact Genuine Property Management to see how we can help.