Phil Querin Q&A: Background Checks and the Fed's 7 Year Rule

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January 2, 2018
Phil Querin
MHCO Legal Counsel
Querin Law

 

Question.  I spoke with someone recently who informed me that Federal Law (i.e. the Fair Credit Reporting Act) prohibits criminal background checks beyond seven years.  Yet I am concerned that with some crimes, e.g. child molestation, it would be important to know if there were any convictions, not just those within the last seven years.  It also appears that HUD seems to be saying the same thing.  I am getting mixed information on this issue. Can you help clarify?

 

Answer.   I’ll try.  First let’s start with some definitions:

Section 603 of the FCRA defines a “consumer report” as:

 

“…any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for (a) credit or insurance to be used primarily for personal, family, or household purposes***

 

Section 605 provides that “…no consumer reporting agency may make any consumer report containing any of the following items of information:

**** 

(3) Paid tax liens which, from date of payment, antedate the report by more than seven years.

(4) Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years

  1. Any other adverse item of information, other than records of convictions of crimes[1] which antedates the report by more than seven years (Emphasis added.)

Based upon the preceding text in subsections (3) and (4), I read (5) to mean that 7+ year old criminal convictions are excluded from the list of 7+ year old adverse information that is prohibited to be a consumer report.

 

So, from a consumer reporting perspective, I do not believe there is any restriction for convictions over seven years old.

 

The position of HUD is an entirely different matter.  This has nothing to do with consumer reporting; rather it relates to HUD’s views on “disparate impact”.

 

Disparate impact holds that certain practices in employment, housing, etc., may be considered discriminatory under the Fair Housing Act, if they have a disproportionately "adverse impact" on certain members of a protected class, i.e. those falling into the following groups: Race, color, religion, sex, disability, familial status or national origin.[2] 

 

Today, a landlord may be found to have discriminated against a prospective tenant, not because of an intentional discriminatory act, such as rejecting him or her based upon race or religion, but unintentionally, because the landlord relied upon a perfectly legal basis, except that it had a disproportionately adverse impact on members of a protected class. Proof of the “disproportional impact” is usually based upon some statistical correlation showing that a certain class of protected persons are negatively impacted more than others. In other words, unintentional discrimination can now be a violation of the Act.

 

On April 4, 2016, the U.S Department of Housing and Urban Development (“HUD”) issued its “Office of General Counsel Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions” (hereinafter, the “Memo”). The full text of the 10-page Memo can be found here. Not surprisingly, it follows the June 25, 2015 ruling by the U. S. Supreme Court, in the Texas Dept. of Housing vs. Inclusive Communities case, which upheld the much-debated concept of “disparate impact” under the Fair Housing Act, as amended (the Act”). 

 

At footnote 43 of the Memo, the following appears:

 

***see Megan C. Kurlychek et al., Scarlet Letters and Recidivism: Does an Old Criminal Record Predict Future Offending?, 5 Criminology and Pub. Pol’y 483 (2006) (reporting that after six or seven years without reoffending, the risk of new offenses by persons with a prior criminal history begins to approximate the risk of new offenses among persons with no criminal record). (Emphasis added.)

 

Does this mean that six or seven years is the maximum look-back that landlords can make when screening someone’s criminal background? I submit that in non-violent crimes, this is not an unreasonable review period. But in cases of crimes to the person, and most significantly, rape and child molestation, I agree a seven year period is not enough. However, the Memo is not to be read to say that any conviction over seven years may not be taken into consideration when screen potential tenants. Its purpose is to “…issue guidance, mostly by way of examples and prior case law, in how the use of criminal history during the tenant-screening process, may, and may not, trigger a disparate impact result.”

 

 

 

Here are some tenant screening tips based upon one of my earlier MHCO Q&As:

 

1.Beware of testers, calling over the phone and asking if you will rent to persons with a criminal background. Be careful about answering these blind calls with a “yes” or “no”. Make sure callers understand that no rental decisions are made in advance of reviewing all relevant background information, including a criminal background report. Encourage the caller to either come to the office and pick up the necessary paperwork, or if they prefer, send it to them at their provided address.

 

2.Ultimately, landlords should plan on making adjustments in their rules and application process.  

 

3.Do not have a rule or policy that treats an arrest, with no conviction, the same as a conviction. If you currently have such a rule, it should not be enforced.

 

4.Do not have a blanket guideline providing, for example, that conviction for any crime is an automatic denial.

 

5.Be sure that all rules or policies concerning criminal records are uniformly enforced – no exceptions.  However, note No. 7 below. You should avoid a policy saying that all persons with a felony are automatically disqualified. There is a world of difference between an ex-felon who served time for embezzlement ten years ago and has been a contributing member of society ever since vs. an ex-felon who served time for aggravated battery, and has been in and out of jail for similar violent crimes over the past five years.

 

6.If possible, evaluate all other rental history, such as prior tenancies, employment, credit, income and affordability, before even going to the results of a criminal background check. If the prospective tenant does not pass one or more of these other criteria, then the rejection can be based on that, rather than a criminal background report, thus avoiding the disparate impact issue entirely.

 

7.In evaluating an applicant’s criminal history, do not use a “one size fits all” approach. There are several gradations of severity. Additional issues need to be addressed before making a decision to reject a prospective tenant based upon criminal history. For example:

 

a.How long ago was the conviction? (A single conviction over 6-7 years old, in most cases should probably not be used as the basis for a denial (excluding registered sex offenders, or those convicted of violent crimes).

 

b.What has the person been doing since their release?

 

c.Has the person been convicted once, or on multiple occasions?

 

d.What was the nature and severity of the crime?

 

8.Note that according to the Memo, a refusal to rent to an applicant who has a conviction for one or more drug crimes involving the manufacture or distribution (not mere possession) of a federally defined controlled substance is permissible and not subject to a disparate impact claim. In other words, a landlord or manager may legally base the refusal to rent based upon a conviction for manufacture or distribution is not a violation of the Act, based upon disparate impact. Per the Memo: “Section 807(b)(4) of the Fair Housing Act provides that the Act does not prohibit ‘conduct against a person because such person has been convicted … of the illegalmanufacture or distribution of a controlled substance as defined in section 102 of the Controlled Substances Act (21 U.S.C. 802).’”

 

9.ORS 90.303 (Evaluation of Applicant) addresses some of the same issues as in the Memo, but not all of them. And where there is similarity, Oregon law does not go as far as the Memo on the issue of criminal records and disparate impact. Oregon’s statute provides:

 

(1) When evaluating an applicant, a landlord may not consider an action to recover possession pursuant to ORS 105.105 to 105.168 (Oregon’s eviction statutes – PCQ) if the action:

 

      (a) Was dismissed or resulted in a general judgment for the applicant before the applicant submits the application. This paragraph does not apply if the action has not resulted in a dismissal or general judgment at the time the applicant submits the application.

      (b) Resulted in a general judgment against the applicant that was entered five or more years before the applicant submits the application.

 

(2) When evaluating the applicant, a landlord may not consider a previous arrest of the applicant if the arrest did not result in a conviction. This subsection does not apply if the arrest has resulted in charges for criminal behavior as described in subsection (3) of this section that have not been dismissed at the time the applicant submits the application.

 

(3) When evaluating the applicant, the landlord may consider criminal conviction and charging history if the conviction or pending charge is for conduct that is:

     (a) A drug-related crime;

     (b) A person crime;

     (c) A sex offense;

     (d) A crime involving financial fraud, including identity theft and forgery; or

     (e) Any other crime if the conduct for which the applicant was convicted or charged is of a nature that would adversely affect:

            (A) Property of the landlord or a tenant; or

            (B) The health, safety or right to peaceful enjoyment of the premises of residents, the landlord or the landlord’s agent. 

 

  1. Landlords should not assume that compliance with ORS 90.303 means that a denial of tenancy automatically avoids a disparate impact claim.  Landlords and managers should be extra-cautious in this minefield, since where federal law is more restrictive (i.e. burdensome on landlords), it will likely pre-empt state law.  Thus, compliance with state law, but non-compliance with federal law, can still result in a disparate impact claim under the Fair Housing Act, as amended.

 

Here are some considerations to keep in mind:

 

  1. The Memo and ORS 90.303 both prohibit screening applicants for arrests, regardless of the conduct that led to the arrest;
  2. ORS 90.303 says that an arrest which has not been dismissed, but is still pending (i.e. a conviction is still possible) may be considered in tenant screening. The HUD Memo does not address this issue – so we don’t know what the feds would say. Accordingly, it may be prudent to take a more balanced approach in these situations. For example, rather than having a blanket policy that a tenant will automatically be rejected if their charge is still pending, landlords and managers should evaluate the matter based upon (i) When the matter will be resolved, e.g. a week, a month, or a year? (ii) What was the charge? (iii) If convicted, would the applicant automatically be denied? As noted above, the whole issue of criminal background information is an element of the application process that need not be fully vetted, if, regardless of the crime, its severity or recency, the person would fail the application process on other grounds. If so, there is no need to rely upon a landlord’s criminal background policy at all. However, a word of caution here: Be prudent when selecting a basis for denial. Using a weak reason can be viewed as pretextual if the applicant is a member of a protected class. In other words, beware of using a credit basis for denial if it is “iffy” and exclude the criminal background basis. In these cases, landlords and managers should consult legal counsel; it may be best to use both bases.
  3. ORS 90.303 says that a landlord may consider a conviction for certain conduct, generally relating to threats of violence, drugs, sex, or property damage, which would indicate risks to fellow tenants or the landlord. However, the HUD Memo is broader and more subtle (i.e. it demands an evaluation beyond a one-size-fits-all rejection policy). In short, do not rely solely on ORS 90.303, to the exclusion of the more balanced approach demanded by the Memo.
  4. Unlike the HUD Memo, ORS 90.303 does not address how long ago the conviction occurred, or require an evaluation of what the applicant had been doing since the conviction. (e. g. evidence of rehabilitation). The General Landlord-Tenant Coalition could not reach agreement on whether to use a five or seven year standard in the statute[3], nor whether multiple convictions should be dealt with differently than single ones. Accordingly, our statute is silent on this issue.

 

  • .  Landlords could be forgiven for feeling they are caught on the horns of a dilemma. If they follow Oregon statutes, it may not be enough. And while it may be sufficient to follow federal law, today that requires a “disparate impact” analysis, which, at best, is a shifting and nuanced set of “guidelines” based upon anecdotal information.

 

Perhaps most unsettling is the fact that today, a landlord’s good faith effort to comply with the tenant application process is not enough. Instead, unintentional discrimination, now known under the more benign title, “disparate impact”, has become a basis for Fair Housing claims. Yet unlike statutes, which can provide distinct guidance, disparate impact is more of a concept than a law, since it ignores one’s intent, and looks instead to the perceived long term consequences of certain actions based upon empirical statistics, academic writings, analysis, surveys, demographics and footnotes. Is this something landlords can or should be expected to fully appreciate and understand when evaluating a person for tenancy? 

 


[1] It would have helped if a comma had been inserted after “convictions of crimes”.

[2] Note, many local jurisdictions have additional class, including sexual orientation.

[3] It is believed that most screening services do not report criminal information over seven years old.

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