Tenant Background Report Provider Settles FTC Allegations that it Failed to Follow Accuracy Requirements for Screening Reports

A California-based company that provides background reports to property management companies will pay $4.25 million as part of a settlement with the Federal Trade Commission over allegations the firm failed to follow reasonable procedures to ensure the accuracy of its reports about potential tenants.

In a complaint filed by the Department of Justice on behalf of the Commission, the FTC alleges that AppFolio, Inc. violated the Fair Credit Reporting Act (FCRA) by failing until at least April 2019 to implement reasonable procedures to ensure that criminal and eviction records it received from a third party vendor were accurate before including such information in its tenant screening reports. In addition, the FTC alleges AppFolio also violated the FCRA by including eviction or non-conviction criminal records more than seven years old in its reports.

“Consumers face enough hurdles in obtaining housing without the additional burden of inaccurate background checks,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “AppFolio and all background screening agencies must follow reasonable procedures to ensure that the background reports that they provide to their customers are as accurate as possible.”

Property managers use AppFolio’s reports for tenant screening. Under the FCRA, companies that provide tenant screening background reports on consumers are required to follow reasonable procedures to ensure the “maximum possible accuracy” of those reports and are prohibited from reporting certain obsolete information.

The FTC alleges that AppFolio failed to implement procedures to adequately review the accuracy of the information it received from its vendor before including the information in background reports.

As a result, AppFolio provided inaccurate information about some applicants such as records for individuals with a different name or birthdate; records with a missing or inaccurate offense name, type, or date; records with a missing or inaccurate disposition; and multiple entries for the same criminal or eviction action. The FTC alleges that some applicants may have been denied housing or other opportunities because of the inaccurate information included in background reports provided by AppFolio.

Despite receiving numerous complaints from consumers, AppFolio did not make changes to its procedures that addressed the problems with the reports, the FTC alleges.

In addition to the $4.25 million monetary penalty, the proposed settlement  prohibits AppFolio from providing non-conviction criminal or eviction records older than seven years and requires the company to maintain reasonable procedures to ensure the maximum possible accuracy of information included in its background reports.

The Commission voted 4-1 to authorize the Department of Justice to file the complaint and stipulated final order. Commissioner Rohit Chopra voted no and issued a dissenting statement. Commissioner Rebecca Kelly Slaughter issued a concurring statement . The Department of Justice, on behalf of the FTC, filed the complaint and stipulated final order in the U.S. District Court for the District of Columbia.

NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated final orders have the force of law when approved and signed by the District Court judge.