"HUD Issues New Guidelines on AI Usage in Applicant Screening"
On May 2, 2024, the Department of Housing & Urban Development (HUD) released two crucial guidance documents. These documents address the Fair Housing Act (FHA) application to two areas where the use of artificial intelligence (AI) poses particular concerns: the tenant screening process and its application to the advertising of housing opportunities through online platforms that use targeted ads. This guidance, mandated by an Executive Order from President Biden, is a significant step in combating discrimination enabled by algorithmic tools used to make leasing decisions. In this article, I will explain the HUD guidance regarding tenant screening using AI and outline the crucial steps that owners and managers of multifamily housing must take to avoid potential liability in this area. Your role in implementing these steps is vital to ensuring fair and nondiscriminatory housing practices. This guidance from HUD is a comprehensive explanation of how the Fair Housing Act serves as a protective shield for the rights of applicants for rental housing. It provides recommendations and best practices for housing providers and tenant screening companies to ensure compliance with the Fair Housing Act. The guidance's primary goal is to guarantee that the screening of applicants for rental housing is conducted in a nondiscriminatory manner. It also aims to help applicants understand their rights and identify instances when they may have been unlawfully denied housing. The guidance also acknowledges the growing use of advanced technologies, such as machine learning and artificial intelligence, by tenant screening companies and reiterates that the Fair Housing Act applies to housing decisions irrespective of the technology used. According to the guidance, certain screenings are particularly likely to pose fair housing concerns. These include: Screening criteria that disproportionately exclude applicants of a certain race or other protected class: If a screening policy has a disparate impact on a protected class, it may be considered discriminatory. Conducting more precise screenings focusing on relevant information can help mitigate this concern. Screening based on past actions unrelated to tenancy or incidents unlikely to recur: Screening policies should focus on information relevant to applicants' ability to comply with their tenancy obligations. Screening criteria that consider past actions or incidents that are not directly related to tenancy or are unlikely to recur may result in unfair and discriminatory exclusions. Inaccurate records and incomplete datasets: Screening companies should ensure that the records they use are accurate and complete. Inaccurate records can disproportionately affect certain demographic groups, and incomplete datasets may lead to biased screening outcomes. Screening companies should also avoid using wildcard or name-only matching procedures, which can lead to erroneous attributions and misidentifications. Overbroad screening policies: Screening policies should be tailored to the specific needs and circumstances of the housing provider. Overbroad screening policies that consider irrelevant or unnecessary information may result in discriminatory outcomes. Screening policies should be clear, detailed, and publicly available to ensure transparency and fairness. Lack of transparency in complex models: Housing providers and tenant screening companies that use complex models, such as those based on machine learning or artificial intelligence, should ensure transparency in their decision-making processes. Lack of transparency can make it difficult to assess whether a model complies with fair housing laws and can lead to discriminatory outcomes. Models should be designed, tested, and monitored for fairness and accuracy. Housing managers and tenant screening companies must be fully aware of these fair housing concerns and take immediate steps to address them in their screening practices. Non-compliance can lead to serious legal and reputational consequences, underscoring the urgency of this matter. The three types of screenings discussed in the document are: Credit History Screening: This type of screening involves assessing an applicant's credit history, including their credit scores and reports. The document highlights the disparities and potential discriminatory effects based on race, national origin, sex, disability, or other protected characteristics. It emphasizes that credit scores were not designed to predict tenancy behavior accurately and that overreliance on credit history may result in unjustified discrimination. Eviction History Screening: Eviction history screening involves reviewing an applicant's records for past evictions. The document points out that eviction records can be unreliable. It highlights the disproportionate impact of evictions on certain groups, such as Black and Hispanic renters, women, families with children, and individuals with disabilities. It cautions against overbroad screening policies that do not consider eviction records' nature, recency, or relevance and emphasizes the need for fair and accurate assessments. Criminal Records Screening: This type of screening involves considering an applicant's criminal history. The document highlights the disproportionate impact on individuals with disabilities and Black and Brown persons and emphasizes that overbroad criminal record screenings can have unjustified discriminatory effects. It recommends differentiating between offenses based on their nature, severity, and recency and providing opportunities for applicants to present evidence of rehabilitation or mitigating factors. Reasonable accommodations may be required for individuals with disabilities or those who have experienced domestic violence, dating violence, sexual assault, or stalking. These three screenings are particularly likely to pose fair housing concerns due to the potential for disparate impact and discriminatory outcomes. The document provides guidance on how housing providers and tenant screening companies can ensure their screening practices comply with fair housing laws and promote equal opportunity for all applicants. The Role of Tenant Screening Companies in Discriminatory Decisions Tenant screening companies can play a role in discriminatory decisions by providing screening reports and recommendations to housing providers. They influence the outcome through their screening practices, criteria and standards, discretionary factors, denial recommendations, and the accuracy and completeness of records. Tenant screening companies must ensure compliance with fair housing laws and strive for transparency, accuracy, and fairness in their screening processes to minimize the potential for discriminatory decisions. Most importantly, owners must remember that it is not the screening companies who deny applicants - it is the property owners. Courts Have Weighed in on the Issue The document mentions several court cases to provide legal context and support the guidance related to tenant screening practices and the Fair Housing Act. Key cases include: Sec y of Dept. of Hous. & Urb. Dev. ex rel. Loveless v. Wesley Apt. Homes, LLC: Related to tenant screening practices. Conn. Fair Hous. Ctr. v. CoreLogic Rental Prop. Sols., LLC: Highlights tenant screening companies' liability under the Fair Housing Act. Meyer v. Holley: Explains vicarious liability and housing providers' responsibility for agents' actions. Sabal Palm Condos. of Pine Ridge Ass n, Inc. v. Fischer: Discusses tenant screening companies' liability. United States v. Balistrieri: Supports the broad application of the Fair Housing Act. Village of Arlington Heights v. Metro. Hous. Dev. Corp.: Related to proving discriminatory intent. McDonnell Douglas Corp. v. Green: Framework for proving discriminatory intent using circumstantial evidence. Tex. Dept. of Hous. & Cmty. Aff. v. Inclusive Cmtys. Project, Inc.: Burden-shifting framework for proving discriminatory effects. La. Fair Hous. Action Ctr. v. Azalea Garden Props., LLC: Example of discriminatory effects liability in tenant screening practices. Information to Provide When Denying an Application When denying an applicant's application, the following information should be provided to the applicant: A detailed denial explanation that specifies the reasons for the denial and the specific standards or criteria that the applicant did not meet. Supporting documentation, such as the screening report or records relied upon in making the decision. Information on how to dispute the accuracy or completeness of any negative information. Information on how to request an appeal if an appeal process is available. Information on requesting a reasonable accommodation if the applicant has a disability. An adverse action notice that includes the specific reasons for the denial based on screening results. Contact information for the tenant screening company or housing provider responsible for the denial. Information on the screening process, including the criteria used for evaluation and the sources of information relied upon. The right to dispute or correct any inaccurate information that may have contributed to the denial. Reminders of fair housing rights and protections, including information on filing a complaint if discrimination is believed to have occurred. Bottom Line To comply with the guidance provided, owners can consider the following recommendations: Review and update screening policies to ensure they are fair and do not disproportionately impact protected groups. Use disparate impact analysis to identify and mitigate any potential discriminatory effects of screening policies. Evaluate alternative methods of assessing an applicant's financial responsibility, such as rental payment history or income verification, instead of relying solely on credit history. Carefully assess eviction history screening practices, considering the circumstances surrounding the eviction. When conducting criminal records screening, differentiate between criminal offenses based on their nature, severity, and recency. Implement mitigating circumstances and provide reasonable accommodations for applicants with disabilities or those who have experienced domestic violence. Regularly audit and monitor screening practices to ensure compliance with fair housing laws. Provide transparency in the screening process by clearly communicating the criteria and allowing applicants to challenge negative information. Stay informed about fair housing laws and seek legal guidance to ensure compliance with the latest guidelines and requirements. Finally, remember that overreliance on screening company algorithms to make leasing decisions can lead to fair housing trouble. It is people who are applying for housing. It should be people who make the final decision about that person's suitability for housing.