Guide: Rent Reporting Legislation

A definitive guide to Rent Reporting legislation and the conversation of credit reform.

How Rent Reporting legislation is solving the Catch-22 of credit and tackling economic discrimination.

In this guide:

1. Introduction

2. Why is rent considered Alternative Data?

3. Statistics: Affordable housing and credit

4. Solving for credit inequality: Alternative Credit Data

5. Solving for legislation: Renters, Landlords & Data Furnishers

6. Solving for inequality: How you can help yourself or others

7. Preparing for change: The future of credit inequality reform

No country, system or individual has been able to avoid the consequential change caused by the COVID-19 pandemic. To speak to our country's credit system in 2021 and beyond, is to acknowledge the pandemic’s impact and the untenable weight placed on systemic inequality.

The lending economy comprises organizations, institutions, and governments who embed bias.

The global pandemic has exposed and sadly fueled inequality across the globe, and the inordinate impact it has made has aggravated a difficult truth; those most marginalized are the least resilient to shocks.

To proponents of Alternative Credit Data, fair access to credit no longer means a nice car or better rates on a credit card, to the precariat, it means equitable access to predictability, security, and the make or break of material and psychological welfare.

For those living unsustainable, bits-and-pieces lives, removed from decision making, the denial of fair access to credit is the denial of security, opportunity, dependability and in its worst form, hope.

In this pillar article, we discuss how Alternative Credit Data furnishers (such as LevelCredit & RentTrack), Data Analytics Companies, Housing Authorities, Lobbyists & Lawmakers, and the US Government are aligning around a common mission, to level the playing field and create opportunity, at a minimum reducing with the goal removing the fragility of underserved populations.

Traditional vs. non-traditional data

Before categorizing credit data as traditional or non-traditional, we should comment that they are in fact both types of credit data. Meaning both are indeed eligible for a consumer credit report, both can comprise one's credit score, and factor into lending decisions.

Traditional credit is a term that often refers to the process of companies’ accounts receivable regularly sending data to Experian, TransUnion and Equifax. Those companies may typically be financial institutions, mortgage lenders, auto finance companies and credit card accounts. Thus Traditional credit requires taking on debt, as a more abstract portrayal, may be termed as frankly the only way an individual perceives the ability to build or establish credit. Most consumers are unaware of an alternative.

It may surprise you, as it does most, to learn what is considered non-traditional.

Typically, non-traditional credit data comprises monthly payments made by Americans that are NOT based on debt. To paint with a broader stroke, Property Management Companies, Landlords, Utility Companies, Layaway Accounts, Secured Credit Cards etc. are all non-traditional. At a high level:

Traditional Debt Based

Credit card history.
Loan and loan repayment history.
Mortgage history.
Credit inquiries.
Public records such as bankruptcy ﬁles.

Non-Traditional

Rent payments
Utility payments
Telecommunication/Internet/Cable payments
Insurance payments
Money management markers, such as how long bank accounts have been open, the frequency of withdrawals and deposits, and the amount of savings
Property and asset records, including the value of owned assets
Alternative lending payments such as payday loans, installment loans, rent-to-own payments, buy-here-pay-here auto loans, and auto title loans
Demand deposit account (DDA) information, including recurring payroll deposits and payments, average balance, etc

For those with established credit, the addition of Alternative Credit Data may be in an attempt to improve access to credit.

Credit invisible consumers don’t have any credit history with the three nationwide credit reporting agencies: Equifax, Experian and TransUnion. According to the Consumer Financial Protection Bureau (CFPB), 19 million Americans possess a stale credit history or are classified ‘unscorable’ and 26 million are classified as ‘credit invisible’. An Alternative Credit Data white paper from Experian noted 62 million Americans also have ‘thin files’, meaning those consumers have just 1-4 credit accounts on their credit reports.

For consumers who are indeed credit invisible or possess thin-files, non-traditional data may mean their first access to the lending economy.

For lenders, non-traditional data can mean a clearer and more accurate persona on which to base lending decisions, or potentially as a more enticing consequence, an increase in the number of loans approved.

As this article considers recent legislation supporting Assisted Housing and its implied benefit to underserved populations, it is useful to first propose what access to credit can mean to marginalized groups.

The consequence for most:

Improved access to student loans
Purchasing a vehicle
Save on loan interest rates
Better terms & availability of loan products
Better credit card rates
Insurance discounts
Housing options (rental and home loans)
Security deposit waivers on utilities
More opportunities for personal development / fulfillment

The consequences for marginalized populations:

Potential rescue from economic hardship
Strengthened resilience
Coping with shocks and aiding recovery
Improved health
Lower debt
More productive work
Improve status for marginalized populations
More harmonious family relationships
Improved status for women
Ability to choose vs react

Put simply, since landlords, property managers and property management companies are not defined as creditors, they do not systematically report payment data to the three major consumer credit reporting bureaus, Experian, TransUnion and Equifax.

Considering a major factor in homeownership is established credit, it can be implied that a sizable percentage of those with little to no credit history are indeed renters. In 2019, 30.2% of all households nationwide are housing cost burdened (spending 30% or more of their income on housing). According to Visual Economics, the typical rent or mortgage makes up approximately 18% - 30% of the household income, making housing and shelter the largest monthly expense.

According to TransUnion, when rent payments were added to a consumer credit report, an average increase of nearly 60 points was noted. Furthermore, unscorable & subprime consumers experienced the most gain. Around 9% of the cohort moved from unscorable to scorable with an average credit score of 631.

Wider adoption of rent payment reporting by the rental housing industry into the consumer reporting ecosystem can play an instrumental role in enabling those consumers to better demonstrate their creditworthiness and position them for greater financial success.- Maitri Johnson, vice president of tenant and employment screening at TransUnion

Everybody needs basic economic security. Whilst not a panacea, basic access to a fair credit system can rescue countless people from economic hardship, ultimately strengthening resilience and aiding recovery from shocks.

4.8 million households in the US, comprising roughly 4% of all households in the United States, receive housing assistance. In terms of income, 93% meant almost all tenants living in Section 8 units have incomes less than $20,000 a year. Of the 44 million renter households in the US, nearly 10.8 million have extremely low incomes.

Highlighting the cost gap, Harvard researchers also noted that in 2016, close to half of all renters spent 30% or more of their income on rent, making them ‘cost-burdened’. The rate has increased more than 30% over the last five years, which is also a record high. Even more concerning, according to Habitat, 1 in 7 households, around 17.6 million, are ‘severely cost burdened’, spending half or more of their income on housing.

It can be no surprise that marginalized, underserved and struggling populations also experience inequality in credit. According to the Consumer Financial Protection Bureau, an estimated 26 million people are “credit invisible”, with another 19 million who are said to have “unscorable” files.

An additional 19 million consumers, a startelling 8.3 percent of the adult population, had credit records that were defined as unscorable. In both cases, fair access to credit is a ‘Catch-22’, which makes the credit system unfair by definition.

The CFPB Office of Research further affirms the difficult truth, “There is a strong relationship between income and having a scored credit record. Almost 30% of consumers in low-income neighborhoods are credit invisible and an additional 15% have unscored records”.

Alternative Credit Data is being positioned as a solution to,

...correct the longstanding inequity where those with the least resources have to fight the hardest to establish and improve their credit scores.- Sen. Steven Bradford (D-Gardena)

Studies such as the United States Department of Housing and Urban Development (HUD) and Policy and Economic Research Council (PERC) report, “Potential Impacts of Credit Reporting Public Housing Rental Payment Data” have helped quantify the positive impact of adding rental payment data to tenants’ credit reports, especially those in difficult or blind credit bands.

The report considered the credit scores of tenants in over 9,000 units, concluding that the addition of rental payment data led to a 51% - 65% increase in the number of HUD-assisted tenants with credit scores above 620. Furthermore, the report stated that reporting rental payment data nearly eliminated credit invisibility among HUD-assisted tenants. The ‘unscoreable’ rate in a single model, fell dramatically from 49% to 7%. In one public housing model documented in the HUD report, the ‘unscoreable’ rate fell from 11% to 0%, concluding all residents were now scoriable.

According to this large population study, including rental data, therefore, provided an opportunity for meaningful financial progress for typically marginalized and underserved populations, without taking on additional debt.

On her path to becoming the 49th and current vice president of the United States, Senator Kamala D. Harris (D-CA) called for an amendment to the Fair Credit Reporting Act to require credit reporting agencies to include payments of rent, cell phone bills, and utilities when calculating credit scores.

We applaud Sen. Harris’ proposal to responsibly expand access to credit through the use of Alternative Data. - Joanne Gaskin, vice president of scores and analytics at FICO

Alongside bipartisan and some bureau support, responsible corporate entities such as Levi Strauss foundation's Mission Asset Fund too recognized the problem, becoming a co-sponsor of the ground-breaking House Bill SB-1157 which,

...would help low-income tenants build credit by reporting monthly rent payments to the credit bureaus. - Mission Asset Fund

SB-1157, authored by Sen. Steven Bradford (D-Gardena), is a law effective as of July 1, 2021, assisting low-income renters to establish a credit history by requiring landlords with assisted housing units, to give their tenants the option of reporting rent payments to a major credit bureau.

This bill, the first of its kind in the nation, starts to correct the longstanding inequity where those with the least resources have to fight the hardest to establish and improve their credit scores...

...for some of our most at-risk tenants. Renters and working families have suffered because of COVID-19, and this bill will provide an opportunity for families to responsibly build their credit after this crisis. - Sen. Steven Bradford (D-Gardena)

SB-1157: The Facts

Currently, rent reporting is not federally mandated
SB-1157 is a California law effective July 1, 2021 for tenants
Assisted housing requires consent for rent reporting
Rent reporting is OPTIONAL and should be excluded from automated enrollment
tenants can opt-out at any time
Revenue sharing cannot be applied to this service

LevelCredit & RentTrack as pioneers of rent reporting in the US, were able to meet the stringent compliance requirements of the SB-1157 law, rolling out a Full Compliance & Handling product.

SB-1157 has 9 specific requirements that are met by the RentTrack Compliance & Handling product, including a mail house solution supporting customized SB-1157 written notice templates comprising personalized invite codes, QR scannable codes, and pre-filled resident data for returned forms. The solution includes mailed, written notices with a self addressed stamped envelope to every affordable housing resident and processes all written elections to opt-in and those that opt-out of the program.

RentTrack reports the rent for all opt-in renters and does not permit opt-outs to opt back in for 6 months, as per lawful requirements. Additionally, the solution provides monthly compliance reports for USPS tracking of sent elections/letters and provides an annual written notice with a self addressed stamped envelope to every affordable housing resident.

Following the success of California’s SB-1157 low and the aforementioned studies demonstrating the favorable impact rental payment data reporting has made to affordable housing tenants, Colorado passed House Bill 21-1134 on July 29th, 2021, to Report Tenant Rent Payment Information To Credit Agencies in the state of Colorado.

As outlined by House Bill 21-1134, Colorado Housing and Finance Authority (CHFA) was tasked with conducting the pilot program with the overall goal of strengthening Colorado’s affordable housing and economic development. The bill directs CHFA as the “(authority) to contract with a third party (contractor) to administer the pilot program”.

With the success of RentTrack’s dedicated compliance product for California’s SB-1157, CHFA awarded RentTrack the pivotal position as third party (contractor) to administer the pilot program, thus supporting Colorado’s innovative Rent Reporting for Credit pilot Program.

The program will soon offer Colorado affordable housing tenants the option to have their rent payment data reported to all three major credit bureaus, building their credit. The pilot program, running through 2024, is an exciting collaboration, providing an opportunity for meaningful financial progress to typically marginalized and underserved populations, without taking on additional debt.

With over 50% of the Colorado Property Management Companies RentTrack works with having assisted/affordable units, RentTrack was selected among other finalists, offering a Total Compliance Solution, that solves for mixed portfolio types, easy implementation, tracking & reporting, opt-in / out-out and mail delivery.

Colorado’s House Bill 21-1134 and California’s SB-1157 recognize the importance of adding rental payment data to tenants’ credit reports, for those underserved / excluded populations. More so, this is another step forward in leveling the playing field for consumers, and creating fair access to the lending economy.

The movement to protect an increasing precariat with basic access to credit is no longer a hope, it is becoming a necessary reality. To live is to choose.

Without the freedom to make ‘mistakes’, people cannot learn to take control of their lives successfully. - Guy Standing from Basic Income: And How We Can Make It Happen.

Yes, to live is to choose, but the ability to choose is the notion that you have a choice. In our underserved communities, there is a denial of basic opportunity. Fair access to the lending economy is one step toward choice.

What actions can I take?

Do you own or manage subsidized multifamily units in California?

Do you own or manage subsidized multifamily units in Colorado?

Learn about our Total Compliance Solution by emailing sales@renttrack.com

Are you a lobbyist, political writer or policy-maker?

Do you pay cell phone, rent or utility bills in the US?

LevelCredit can add all of those on-time payments to your credit report. Get started.

Are you a large scale property management company?

See how RentTrack can report your resident’s rent payments to ALL 3 Credit Bureaus.

First principles is a problem solving method based in philosophy that removes assumptions and argues up from zero, for a ‘new knowledge’ solution.

Creating legislation to report Alternative Data, in this case rent, to the three credit reporting agencies works on the assumption that those agencies should operate as they do today, and that it’s a legislator’s job to rationalize around them.

Looking past those assumptions, the current Biden administration has proposed comprehensive changes to the rules governing the industry and has proposed a government-run credit reporting agency.

To quote a now familiar voice:

The next Congress must enact bold, comprehensive legislation to reform a credit reporting industry that has failed working families and that perpetuates systemic racism and economic inequality. - Sen. Sherrod Brown (D-Ohio).

On June 29, 2020, the House passed Congressman Josh Gottheimer’s (NJ-5) bipartisan bill, H.R. 5332, the Protecting Your Credit Score Act. The bill requires all the three credit reporting bureaus to work together to create one online portal to:

Provide free and unlimited access to credit reports and scores;
Provide the ability to initiate and resolve disputes between a consumer and a credit bureau;
Provide the consumer with the ability to place or remove a security freeze on their credit to protect from fraud;
Provide consumers with access to see who the bureaus have sold their data to in the prior two years
Raise cybersecurity standards for the three credit bureaus to reduce the risk of future data breaches;
Direct the GAO to examine the most secure and accurate marker to track a consumer’s credit – whether with a Social Security Number or another federal identifier.

Another set of concerns focus on aspects of the credit reporting system that fuel racial inequities. The worry is, not just that credit reports reflect the underlying wealth gap between Black and white Americans, but also that the prevalent use of that data perpetuates the disparities, further disadvantaging those suffering from economic discrimination.

The administration cited a National Consumer Law Center report that indicated the current credit reporting system perpetuates racial inequities through its data practices. Economic discrimination between black and white Americans was described as a concern and a problem possibly solved by a government-run credit reporting agency.

Such an agency would strive to minimize racial disparities by ensuring that algorithms factor in data considered non-discriminatory, namely rental history and utility bills. Such a body would then:

Minimize racial disparities
Ensure algorithms used for credit scores don't have a discriminatory impact
Accept non-traditional sources of data
Provide new rights to appeal information in their reports
Shorten the amount of time that adverse information could stay on reports
Restrict the ability of employers to use credit reports in hiring decisions

In this country, your credit score is your reputation, and without necessary reforms, like those included in [Pressley's] bill, our credit reporting system will continue to needlessly punish hard working people and families. - Ricardo Sánchez, a spokesperson for Rep. Ayanna Pressley (D-Mass.)

The proposals did not pass the Senate, but the sentiment seems to indicate a shared recognition and somewhat shared solution.

Changes to traditional reporting and scoring are underway. The path to create a just credit system that lifts excluded populations is becoming clearer.

As pioneers of rent reporting in the US, RentTrack and LevelCredit are proud to raise their hand, tell their story, commit their time, shape their product and share their success.

A rising tide lifts all boats.

If you would like to talk with us about integrations, partnerships, supporting your assistant tenants, affiliate programs, lobbying, writing, your story, etc. please reach out to opportunities@levelcredit.com