Can CRAs Rely Solely on Artificial Intelligence?

A Tesla can use artificial intelligence to drive itself but if it makes a mistake people can die. A Credit Reporting Agency (CRA) can use artificial intelligence to issue consumer reports. But what are the ramifications if the reports contain errors? The Federal Trade Commission’s enforcement actions against AppFolio, Inc. and RealPage, Inc. provide guidance. In December of 2020, the Federal Trade Commission (FTC) settled an enforcement action against AppFolio for $4.25 million. (1) This is the largest civil penalty ever obtained by the FTC in a background screening case. CRAs can learn from this case and the FTC’s October 2018 enforcement action against RealPage, which resulted in a $3 million civil penalty. (2)

The AppFolio Enforcement Action

AppFolio provides property management software with built-in tenant screening. The FTC alleged that AppFolio purchased the criminal and eviction records contained in its tenant screening reports from CoreLogic and relied solely on CoreLogic’s procedures for matching the information from housing applications to criminal and eviction records. The FTC claimed that AppFolio issued inaccurate background reports including reports containing records for individuals with a different names or birthdates; reports with missing or inaccurate offense names, types, and dates; reports with missing or inaccurate disposition information; and reports with multiple entries for the same criminal or eviction actions. AppFolio’s unchecked reliance on CoreLogic’s data allegedly violated Section 607(b) of the Fair Credit Reporting Act (FCRA) which requires CRAs to follow reasonable procedures to assure maximum possible accuracy of the information in their reports. It also allegedly violated Section 605(a) which prohibits the inclusion in reports of non-conviction criminal records that are more than seven years old.

In pursuing AppFolio the FTC relied on its failure to take action to correct inaccuracies in its reports despite numerous complaints from consumers. The FTC also relied upon AppFolio’s contract with CoreLogic which disclaimed the accuracy of CoreLogic’s data, warned AppFolio that the criminal records it provided might not pertain to the applicants and required AppFolio to “use commercially reasonable efforts … to independently verify” those records.

AppFolio paid a $4.25 million penalty and agreed to maintain records of complaints by consumers regarding the accuracy of reports. AppFolio also agreed to submit “compliance reports or other information … sworn under penalty of perjury; appear for depositions and produce documents for inspection and copying” to the FTC upon request. (3) This subjects AppFolio to years of potential ongoing FTC litigation.

CRAs who purchase criminal and eviction data should not blindly rely on the accuracy of that data. CRAs need their own “reasonable procedures” to ensure the accuracy of data before including it in reports. This is especially true if the vendor from whom the CRA purchases data disclaims its accuracy.

But what “reasonable procedures” should a CRA adopt? The FTC’s enforcement action against RealPage helps to answer this question.

The RealPage Enforcement Action

The FTC alleged that RealPage violated Sections 607(b) of the FCRA by using broad criteria to match applicants to criminal records and by applying limited filters to the results without procedures to assess the accuracy of reports. RealPage allegedly used a proprietary software that compiled and transmitted reports immediately or nearly immediately to its clients online. RealPage’s matching criteria was allegedly faulty because although it used the applicant’s first name, middle name when available, last name, and date of birth, it required only an exact match of an applicant’s last name along with a non-exact match of a first name, middle name, or date of birth. For example, RealPage would match an applicant named Anthony Jones born on October 15, 1967 to a criminal record for an Antony Jones 10/15/67, Antonio Jones 10/15/67 and Antoinette Jones 10/15/67. If an applicant’s middle name was not available RealPage would allegedly report records with middle names that completely differed from each other. If an applicant’s gender was not available RealPage would allegedly report records containing differing genders. RealPage allegedly lacked procedures to assess the accuracy of its matching criteria and as result mixed the records of multiple individuals even in situations where photographs were available to indicate who the records belonged to. RealPage paid a $3 million penalty and agreed to ongoing compliance and monitoring requirements.

The RealPage enforcement sheds light on the matching criteria the FTC expects from CRAs pursuant to Sections 607(b). CRAs should not automatically include in their reports records containing partial or shortened name matches. A criminal record for an “A. Jones 10/15/67” should not be included in a report on “Anthony Jones 10/15/67” without independent and credible verification that the record is for the same person. Similarly, CRAs should not include records based on only partial birth date matches. A record for an Anthony Jones with a birth date of 1/15/67 should not be included in a report on an Anthony Jones with a birth date of 1/15/68 without independent verification.

Although the FTC did not specifically fault RealPage for utilizing solely artificial intelligence to create reports, CRAs are well advised to require the review of reports by trained personnel following written procedures prior to issuance. It is much easier to satisfy 607(b)’s “reasonable procedures” requirement when a human ultimately decides what to include in a report than it is when this decision is made using only artificial intelligence. Further, the use of artificial intelligence can result in substantial class action liability if the same error repeatedly occurs in the reports of multiple consumers.

For more information on FCRA compliance feel free to contact Joseph Messer at jmesser@messerstrickler.com or (312) 334-3440. Mr. Messer provides comprehensive legal representation to CRAs and related companies throughout the nation in litigation, compliance and transactional matters.  A former Illinois Special Assistant Attorney General, Mr. Messer has extensive trial and appellate experience and is admitted to practice before many federal district courts. He has earned a national reputation for defending lawsuits brought under the FCRA and other consumer protection laws. He has conducted many trials and has substantial class action experience. Mr. Messer is a nationally recognized author and speaker and an active member of the Professional Background Screeners Association.

1 See, Stipulated Order for Permanent Injunction and Civil Penalty Judgment filed by the FTC and Appfolio in the U.S. District Court for the District of Columbia, Case # 1:20-cv-03563 on 12/8/20 (the “Appfolio Order”).

2 See, Stipulated Order for Permanent Injunction and Civil Penalty Judgment filed by the FTC and RealPage in the U.S. District Court for the Northern District of Texas, Case # 3:18-cv-02737-N on 10/16/18.

3 See, Appfolio Order at p. 8-9.