Existing law, the California Fair Employment and Housing Act (FEHA), prohibits, in instances in which there is a government rent subsidy, the use of a financial or income standard in assessing eligibility for the rental of housing that is not based on the portion of the rent to be paid by the tenant. FEHA requires the Civil Rights Department to enforce specific provisions of the act, including the provision described above.

This bill would additionally prohibit the use of a persons credit history as part of the application process for a rental housing accommodation without offering the applicant the option of providing lawful, verifiable alternative evidence of the applicants reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements, in instances in which there is a government rent subsidy. The bill would, if the applicant elects to provide lawful, verifiable alternative evidence of the applicants reasonable ability to pay, require the housing provider to provide the applicant reasonable time to respond with that alternative evidence and reasonably consider that alternative evidence in lieu of the persons credit history in determining whether to offer the rental accommodation to the applicant.

Existing law, the California Fair Employment and Housing Act (FEHA), prohibits, in instances in which there is a government rent subsidy, the use of a financial or income standard in assessing eligibility for the rental of housing that is not based on the portion of the rent to be paid by the tenant. FEHA requires the Civil Rights Department to enforce specific provisions of the act, including the provision described above.

This bill would additionally prohibit the use of a persons credit history as part of the application process for a rental housing accommodation without offering the applicant the option of providing lawful, verifiable alternative evidence of the applicants reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements, in instances in which there is a government rent subsidy. The bill would, if the applicant elects to provide lawful, verifiable alternative evidence of the applicants reasonable ability to pay, require the housing provider to provide the applicant reasonable time to respond with that alternative evidence and reasonably consider that alternative evidence in lieu of the persons credit history in determining whether to offer the rental accommodation to the applicant.

Existing law, the California Fair Employment and Housing Act (FEHA), prohibits, in instances in which there is a government rent subsidy, the use of a financial or income standard in assessing eligibility for the rental of housing that is not based on the portion of the rent to be paid by the tenant. FEHA requires the Civil Rights Department to enforce specific provisions of the act, including the provision described above.

This bill would additionally prohibit the use of a persons credit history as part of the application process for a rental housing accommodation without offering the applicant the option of providing lawful, verifiable alternative evidence of the applicants reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements, in instances in which there is a government rent subsidy. The bill would would, if the applicant elects to provide lawful, verifiable alternative evidence of the applicants reasonable ability to pay, require the housing provider to provide the applicant reasonable time to respond with that alternative evidence and reasonably consider that alternative evidence in lieu of the persons credit history in determining whether to offer the rental accommodation to the applicant.

Existing law, the California Fair Employment and Housing Act (FEHA), prohibits, in instances in which there is a government rent subsidy, the use of a financial or income standard in assessing eligibility for the rental of housing that is not based on the portion of the rent to be paid by the tenant. FEHA requires the Civil Rights Department to enforce specific provisions of the act, including the provision described above.

This bill would additionally prohibit the use of a persons credit history as part of the application process for a rental housing accommodation without offering the applicant the option of providing lawful, verifiable alternative evidence of the applicants reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements, in instances in which there is a government rent subsidy. The bill would require the housing provider to reasonably consider that alternative evidence in lieu of the persons credit history in determining whether to offer the rental accommodation to the applicant.

Existing law, the California Fair Employment and Housing Act (FEHA), prohibits, in instances in which there is a government rent subsidy, the use of a financial or income standard in assessing eligibility for the rental of housing that is not based on the portion of the rent to be paid by the tenant. FEHA requires the Civil Rights Department to enforce specific provisions of the act, including the provision described above.

This bill would additionally prohibit the use of a persons credit history as part of the application process for a rental housing accommodation without offering the applicant the option of providing lawful, verifiable alternative evidence of financial responsibility and reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements, in instances in which there is a government rent subsidy. The bill would require the housing provider to reasonably consider that alternative evidence in lieu of the persons credit history in determining whether to offer the rental accommodation to the applicant.

Existing law, the California Fair Employment and Housing Act (FEHA), prohibits, in instances in which there is a government rent subsidy, the use of a financial or income standard in assessing eligibility for the rental of housing that is not based on the portion of the rent to be paid by the tenant. FEHA requires the Civil Rights Department to enforce specific provisions of the act, including the provision described above.

This bill would additionally prohibit the use of a persons credit history as part of the application process for a rental housing accommodation without offering the applicant the option of providing alternative evidence of financial responsibility and ability to pay in instances in which there is a government rent subsidy. The bill would require the housing provider to consider that alternative evidence in lieu of the persons credit history in determining whether to offer the rental accommodation to the applicant.

 UNFINISHED BUSINESS  

Bill No: SB 267

Author: Eggman (D), et al.

Amended: 6/29/23

Vote: 21

SENATE JUDICIARY COMMITTEE: 8-1, 3/28/23

AYES: Umberg, Wilk, Allen, Ashby, Caballero, Durazo, Laird, Wiener

NOES: Niello

NO VOTE RECORDED: Min, Stern

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/18/23

AYES: Portantino, Ashby, Bradford, Wahab, Wiener

NOES: Jones, Seyarto

SENATE FLOOR: 31-3, 5/31/23

AYES: Allen, Archuleta, Ashby, Atkins, Becker, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Laird, Limón, McGuire, Menjivar, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

NOES: Jones, Niello, Seyarto

NO VOTE RECORDED: Alvarado-Gil, Blakespear, Min, Newman, Nguyen, Ochoa Bogh

ASSEMBLY FLOOR: 62-12, 9/12/23 - See last page for vote

SUBJECT: Credit history of persons receiving government rent subsidies

SOURCE: Author

DIGEST:

This bill prohibits a landlord, in instances involving a government rent subsidy, from using credit history as part of the rental housing application process unless the landlord offers the applicant the option to provide lawful, verifiable alternative evidence of reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements.

Assembly Amendments

require the housing provider to give the applicant reasonable time to respond with alternative evidence if the applicant elects to provide the lawful, verifiable alternative evidence of their reasonable ability to pay.

ANALYSIS:

Existing law:

1. Authorizes housing assistance payments, as part of the U.S. Housing Act of 1937, “[f]or the purpose of aiding low-income families in obtaining a decent place to live and of promoting economically mixed housing.” (42 U.S.C. § 1437f(a).)
2. Prohibits various specified forms of housing discrimination, as part of the California Fair Employment and Housing Act (FEHA), on the basis of protected categories including race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, veteran or military status, or genetic information, whether actual or perceived. (Gov. Code § 12955(a)-(e), (h), (i), (k), and (l).)
3. Limits a landlord’s use of financial or income standards to assess the eligibility of a prospective tenant to that portion of the rent that is to be paid by the tenant, in instances where a government subsidy is involved. (Gov. Code § 12955(o).)

This bill:

1. Makes it unlawful, in instances where there is a government rent subsidy, for a housing provider to use a person’s credit history as part of the application process for a rental accommodation without offering the applicant the option, at the applicant’s discretion, of providing lawful, verifiable alternative evidence of reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements.
2. Specifies that if the applicant elects to provide alternative evidence of reasonable ability to pay then the housing provider shall reasonably consider that alternative evidence in lieu of the person’s credit history in determining whether to offer the rental accommodation to the applicant, and provide the applicant reasonable time to respond with that alternative evidence.
3. Provides that the above provisions do not limit the ability of the owner of a housing accommodation to request information or documentation to verify employment, to request landlord references, or to verify the identity of a person.

Comments

Subsidized housing vouchers can be an effective tool for addressing homelessness. Evidence suggests that subsidized housing vouchers are among the most effective tools for addressing homelessness. A 2015 U.S. Department of Housing and Urban Development study concluded that, of several alternative methods for addressing family homelessness, subsidized housing vouchers are the most successful.^[1] The study tracked families for 18 months after the respective housing interventions. According to a synopsis of the study:

Compared to families in homeless shelters that received no extra help under the study, families given vouchers were:

• 56 percent less likely to experience another episode of homelessness;
• 55 percent less likely to report incidents of domestic violence; and
• 42 percent less likely to have their children placed in foster care or temporarily housed with other family members.

Families with vouchers also had 16 percent fewer absences from school or child care for their children.

The other forms of assistance tested, community-based rapid re-housing and project-based transitional housing, had few significant effects on homelessness and only scattered effects on other outcomes.^[2]

These conclusions are consistent with other research that has shown housing vouchers to be an effective way to address homelessness and its consequences.^[3]

Multiple factors currently limit the effectiveness of subsidized housing vouchers as a tool for combatting homelessness. Though subsidized housing vouchers show considerable promise as a tool for combatting homelessness, several factors currently conspire to limit their success.

For one thing, many landlords refuse even to consider tenants if the tenants have vouchers. This refusal was the target of SB 329 (Mitchell, Chapter 600, Statutes of 2019), which expanded FEHA’s definition of “source-of-income” to prohibit such discrimination. Unfortunately, it appears that many landlords have simply ignored that law,^[4] though that may begin to change now that California’s Civil Rights Department has begun more proactive enforcement.^[5] A second problem that limits the ability of housing vouchers to address homelessness is that demand for housing assistance vouchers far exceeds the supply. The waiting lists for housing choice vouchers in many cities are notoriously long. In 2017, for example, the Los Angeles’ Public Housing Authority estimated that it would take 11 years from the time an Angeleno signed up for a housing choice voucher until the person actually received a voucher.^[6] A third factor is the high cost of finding and applying for housing, both in terms of time and money.^[7]

The last major factor undermining the effectiveness of housing vouchers as a tool for combatting homelessness is that many landlords insist upon checking an applicant’s credit history, regardless of whether most of the tenant’s rent will be paid by government subsidy or not. For some of the same reasons that they qualify for the housing subsidy in the first place, low-income households also frequently have bad credit or simply no credit history at all. As a result, although having a housing subsidy voucher greatly increases the likelihood that tenants will regularly pay the rent on time and in full, their credit histories prevent many voucher holders from ever getting their foot in the door in the first place.

It is this last factor that this bill is designed to address. As the author describes the impetus for this bill, “[f]eedback from social workers working with people experiencing homelessness indicated that they were not successfully finding people stable housing, even when they had vouchers, because of poor or no credit.” Upon further investigation, the author’s office found that “this is an issue across the state and the nation […].”

According to the author:

Housing continues to be one of the top issues that Californians face. Shelter is fundamental, and when it becomes unstable or undependable, receiving a housing voucher after waiting four to five years on a wait list can seem like a panacea. However, with a 60-day time limit, those with poor credit are unlikely to find housing – creating a cycle of instability that can keep families in at-risk situations. Currently, credit scores are used by property owners to determine if someone might be a good tenant. However, research shows that credit scores can be sensitive, imperfect algorithms that make mistakes. In fact, studies have shown that credit scores are often low because families have prioritized paying their rent over other bills. When families receive housing vouchers, risk of nonpayment is greatly diminished. Still, poor credit scores, which are meant to be a measure of financial risk, are one of the top reasons individuals with housing vouchers are denied housing over other applicants. This bill provides a more accurate tool to help evaluate if a tenant will be able to pay their portion of the rent and allows them to be judged more fairly on their current circumstances.

In support of this bill, the County Behavioral Health Directors Association of California writes:

[…] The rental market is difficult for all renters but especially for subsidized renters, a majority of whom are people of color. Today, the use of credit scores as an indicator of financial stability unnecessarily prevents many low-income people from obtaining stable housing. Clients of county behavioral health services often report experiencing housing discrimination related to mental health and substance use disorder issues. The use of credit scores adds yet another unnecessary barrier to housing stability, particularly when the government guarantees rent payments through vouchers. […]

In further support of this bill, Housing California writes:

[…] As housing subsidies make housing affordable, other financial concerns may not persist. Additionally, while some property managers help tenants build credit history by reporting their rental payment history to credit bureaus, credit reports typically do not include rental payments, and often show only negative history of rental payments. For these reasons, requiring landlords to accept alternative evidence in lieu of a credit report may provide a more meaningful picture of a prospective tenant’s ability to pay compared to a credit report. SB 267 would help mitigate a potential barrier to housing, and in turn remove a significant obstacle to efforts to end our affordable housing and homelessness crisis. […]

The California Apartment Association, California Chamber of Commerce, and several organizations removed their opposition when this bill was amended in the Assembly. They write:

On behalf of the organizations listed here, we are writing to inform you that our organizations have removed their opposition and are now neutral. We want to thank you for working with us to include amendments to SB 267 that will allow rental property owners to reference a credit report for an applicant who receives a government rental subsidy so long as the owner considers lawful, verifiable alternative evidence offered by the applicant that demonstrates their reasonable ability to pay the rent. We appreciate also that the bill language confirms that it does not limit the ability of the owner of a housing accommodation to request information or documentation to verify employment, to request landlord references, or to verify the identity of a person.

In opposition to this bill, the California Rental Housing Association writes:

[…] SB 267 will make it increasingly more difficult for rental housing providers to properly evaluate applicants for rental housing and will undo the decades of hard work that have gone into providing affordable housing for millions of Californians that cannot afford to purchase a home. Rental housing providers take great pride in providing affordable housing and we pay special attention when we review potential residents. Our applications are designed to obtain useful background information that is compliant with Fair Housing laws and guidelines, such as those prescribed by DFEH. These criteria are equally applied to each application and are designed to ensure successful tenancies that help build stable communities.

Removing our ability to ask an applicant about their credit history diminishes our ability to properly evaluate applicants, which can create an “apples to oranges” comparison amongst applicants. Such comparisons will require our members to process dissimilar financial information being provided by applicants, which may then subject us to charges of discrimination and violations of fair housing laws. Furthermore, the existing credit bureaus have been established as trusted sources of financial information for many years with established processes to correct any inaccurate information. Additionally, they also have cutting edge software to ensure privacy and prevent hacking. To think any alternative could rise to their level of accuracy and safety is extremely naïve at best.

If credit history is restricted, we may scrutinize an applicant's job history more closely, and raise the income standards for accepting a prospect as a tenant. Or, we may require a phone call with previous employers, rejecting prospects whose former employers decline to disclose information about the prospect. And, we may even start requiring letters of recommendation from previous landlords or "transcripts" of proof of payment for the past five years or more.

The inevitable outcome of restricting credit history information about a prospective renter increases alternative required documentation to become an eligible renter. [ . . ]

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

• CRD: The Civil Rights Department (CRD) reports costs of $ $126,000 in FY 2024-25, and $125,000 in FY 2025-26 and ongoing (General Fund).
• Judicial Branch: Unknown, potentially significant cost pressures to the courts in additional workload (Trial Court Trust Fund, General Fund).

SUPPORT: (Verified 9/12/23)

Arc and United Cerebral Palsy California Collaboration

California Coalition for Rural Housing

California Democratic Party

California-Hawaii State Conference of the NAACP

California Housing Partnership

California Labor Federation AFL-CIO

California School Employees Association

City of Santa Monica

County Behavioral Health Directors Association

County of Alameda

Housing California

Justice in Aging

National Association of Social Workers, California Chapter

People Concern

Southern California Rental Housing Association

Western Center on Law & Poverty

OPPOSITION: (Verified 9/12/23)

California Rental Housing Association

Southern California Rental Housing Association

ASSEMBLY FLOOR: 62-12, 9/12/23

AYES: Addis, Aguiar-Curry, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Holden, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NOES: Chen, Megan Dahle, Dixon, Essayli, Flora, Vince Fong, Gallagher, Hoover, Mathis, Joe Patterson, Waldron, Wallis

NO VOTE RECORDED: Alanis, Davies, Lackey, Jim Patterson, Sanchez, Ta

Prepared by: Margie Estrada / JUD. / (916) 651-4113

9/12/23 19:29:57

**** END ****

1. Gubits et al, Family Options Study: Short-Term Impacts of Housing and Services Interventions for Homeless Families (July 2015) U.S. Department of Housing and Urban Development https://www.huduser.gov/portal/sites/default/files/pdf/FamilyOptionsStudy_final.pdf (as of Feb. 28, 2023). ↑

2. Rice, Major Study: Housing Vouchers Most Effective Tool to End Family Homelessness (July 14, 2015) Center on Budget and Policy Priorities https://www.cbpp.org/blog/major-study-housing-vouchers-most-effective-tool-to-end-family-homelessness (as of Feb. 28, 2023). ↑

3. Fischer, Research Shows Housing Vouchers Reduce Hardship and Provide Platform for Long-Term Gains Among Children (Oct. 7, 2015) Center on Budget and Policy Priorities https://www.cbpp.org/research/research-shows-housing-vouchers-reduce-hardship-and-provide-platform-for-long-term-gains (as of Feb. 28, 2023). ↑

4. California Civil Rights Department Finds Widespread Housing Discrimination Against Federal Housing Choice Vouchers (Oct. 17, 2022) California Civil Rights Department https://calcivilrights.ca.gov/wp-content/uploads/sites/32/2022/10/Fair-Housing-Testing-and-Housing-Choice-Voucher10.17.22PR.pdf (as of Feb. 28, 2023). ↑

5. CRD Files First Lawsuit to Enforce Protections for Housing Choice Voucher Holders (Jan. 4, 2023) California Civil Rights Department https://calcivilrights.ca.gov/wp-content/uploads/sites/32/2023/01/2023.01.04-SOI-CRD-Press-Release.pdf (as of Feb. 28, 2023). ↑

6. Wick, The Waiting List For Section 8 Vouchers In L.A. Is 11 Years Long (Apr. 4, 2017) LAist https://laist.com/news/section-8-waiting-list (as of Feb. 28, 2023). ↑

7. Galvez, “Getting Past ‘No’: Housing Choice Voucher Holders Experiences with Discrimination and Search Costs (May 2010) Poverty and Race Research Action Council http://www.prrac.org/pdf/GettingPastNo.pdf, pp. 10-15 (as of Feb. 28, 2023). Permission to cite on file with the Committee. ↑

SENATE THIRD READING

STR Bill Id:SB 267

Author:(Eggman)

As Amended Ver:June 29, 2023

Majority vote

SUMMARY

Declares it unlawful for housing providers, in instances where there is a government rent subsidy, to use a person's credit history as part of the application process for a rental unit without offering the applicant the option of providing alternative evidence of their reasonable ability to pay the rent.

Major Provisions

1. Declares it unlawful in instances in which there is a government rent subsidy to use a person's credit history as part of the application process for a rental unit without offering the applicant the option, at the applicant's discretion, of providing lawful, verifiable alternative evidence of the applicant's reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements.
2. Requires the housing provider to do both of the following if the applicant elects to provide alternative evidence:
   1. Provide the applicant reasonable time to respond with that alternative evidence; and
   2. Reasonably consider that alternative evidence in lieu of the person's credit history in determining whether to offer the rental unit to the applicant.
3. Declares that the provisions of this bill do not limit the ability of the owner of a rental unit to request information or documentation to verify employment, to request landlord references, or to verify the identity of a person.

COMMENTS

California's Housing Crisis: California is in the midst of a housing crisis. Over two-thirds of low-income renters are paying more than 30% of their income toward housing, a "rent burden" that means they have to sacrifice other essentials such as food, transportation, and health care. In 2022, over 170,000 Californians experienced homelessness on a given night. The crisis is driven in large part by the lack of affordable rental housing for lower income people. According to the California Housing Partnership Corporation's (CHPC)'s Housing Need Dashboard, in the current market, nearly two million extremely low-income and very low-income renter households are competing for roughly 683,000 available and affordable rental units in the state. Over three-quarters of the state's extremely low-income households and over half of the state's very low-income households are severely rent-burdened, paying more than half of their income toward rent each month. CHPC estimates that the state needs an additional 1.2 million housing units affordable to very low-income Californians to eliminate the shortfall.^[1]

The Housing Choice Voucher (HCV) Program: The HCV program is the largest rental assistance program in the country, first established in 1974 under Section 8 of the United States Housing Act of 1937. More than five million people in over two million low-income households use vouchers nationwide, including 307,800 California households as of January 2022.^[2] A key feature of the HCV program is that the program relies on private landlords to accept voucher recipients as tenants. Because the amount of funding provided for the HCV program is limited, far more low-income people qualify for a voucher than actually receive one – and even fewer of those who receive one can successfully find a landlord willing to accept the voucher.

The HCV program is administered by public housing authorities (PHAs), which are independent public entities created by state law and almost entirely funded by the federal government. Due to the mismatch between the number of eligible low-income households and the amount of HCVs available in each region, most PHAs require applicants to join a voucher waitlist, which is intended to filter people into the program as vouchers become available. However, in practice, many people wait years on a voucher waitlist, and some PHAs have had their waitlists closed for years and only open them for extremely brief periods of time due to overwhelming demand.

Vouchers should be a lifeline for families who finally receive them after months or years on the waitlist – but California's voucher recipients increasingly face significant barriers to using their vouchers because they have trouble competing in the state's competitive rental housing market, and because the state continues to lose naturally affordable properties. Once a tenant receives a voucher, they have a limited amount of time to secure housing, typically between 60 and 120 days. Voucher holders apply directly to rental housing openings and they are responsible for covering the costs associated with rental housing applications. However, many voucher recipients lose their subsidy because it can be difficult to pass the screening criteria that rental housing providers impose.

Consumer Credit Reports: Consumer credit reports are used to assess an individual's creditworthiness and contain information such as the amount of debt someone owes and on-time payment history. Rental property owners commonly use consumer credit report information to evaluate prospective tenants for open rental units. However, consumer credit reports are known to have errors and a Federal Trade Commission study from 2012 found that more than 20% of individuals have potential material errors on their credit file.^[3] In addition to the high rate of errors in consumer credit reports, renters' housing payments are also less likely to be considered in credit reports than are homeowners'.

In addition to the fact that renters' housing payments are generally excluded from consumer credit information, voucher holders who face long searches to find suitable rental housing can actually see their credit score decline. Because voucher holders must pay rental housing application fees on their own, the cost of searching for and applying to suitable housing can add up quickly, given that state law allows application fees of up to approximately $55. Other costs related to finding rental housing include travel expenses and potential lost income if voucher holders need to take time off work to view units.

Credit declines due to a prolonged rental housing search can happen at least three ways: first, as rental application fees and search-related costs add up, voucher holders are left with less money to cover their other expenses. If the cost of their housing search causes individuals to fall behind on any other payment obligations, then their credit score can be negatively impacted. Second, even if a voucher recipient continues making all their payments on time, simply using more of one's available line of credit can also lower an individual's credit score, as credit reporting agencies weight the percentage of one's available credit being used as approximately 30% of their credit score.

The third way that a prolonged housing search can hurt a voucher holder's credit is through "hard credit pulls" that property owners may do as part of the rental housing application process. A hard credit pull lowers an individual's credit score and voucher holders that end up applying to many different properties are especially likely to see their credit scores decline due to multiple hard credit pulls.

Issues with Landlord Participation in the HCV System: While there are a variety of factors contributing to the challenges voucher-holders face in finding a home, a major factor is hesitation or unwillingness on the part of landlords to rent to voucher recipients. For years, many landlords refused even to consider tenants with vouchers, commonly listing "No Section 8" or other prohibitive language in rental listings intended to block voucher holders from applying, or attaching discriminatory conditions or higher rent charges solely to voucher holders.

In 2019 California enacted SB 329 (Mitchell), Chapter 600, which prohibited landlords from this kind of source of income discrimination against tenants who rely upon governmental rental assistance, including HCVs, to help them pay the rent. Under that law, landlords are not required to rent to a HCV or rental-assisted household, but cannot blanket refuse to consider tenants who apply for a vacant unit merely because they have a voucher. Landlords also cannot charge higher rent to voucher holders or deny them access to common areas or amenities. The Civil Rights Department recently filed its first lawsuit under the bill against two Sacramento landlords who attempted to extract illegal additional monthly payments from their voucher-holding tenant, and eventually illegally threatened, harassed, and evicted her because she paid with a HCV.^[4]

Some PHAs have created robust landlord engagement programs to entice landlords to consider voucher recipients as tenants. In recent years, HUD has offered new flexibilities to PHAs to boost the success of the HCV program, including allowing PHA administrative funding to be used for housing navigation and landlord incentives. Landlord incentives are benefits offered to private landlords to induce them to seek out voucher recipients as possible tenants, or to hold units open for voucher recipients while federally mandated inspections or other approvals are obtained prior to a lease-up. These include signing bonuses, larger security deposits, the hiring of landlord engagement staff who are available in case any issues arise, and more. They have shown success at increasing the amount of housing units that are available to voucher recipients seeking housing, including in the recent federal Emergency Housing Voucher program.^[5]

An additional challenge facing voucher holders, as previously discussed, is that many landlords run an applicant's credit history, regardless of whether most or all of the tenant's rent will be paid by government subsidy or not. For some of the same reasons that they qualify for the housing subsidy in the first place, low-income households also frequently have bad credit or simply no credit history at all. As a result, although having a housing subsidy voucher greatly increases the likelihood that tenants will regularly pay the rent on time and in full, their credit histories prevent many voucher holders from ever getting their foot in the door in the first place.

This bill would require a housing provider, if they choose to run a credit check on an applicant with a government subsidy, to also provide the applicant the opportunity to share lawful, verifiable alternative evidence of their ability to pay their portion of the rent. The housing provider must give reasonable time to the applicant to respond with that alternative evidence, and must reasonably consider that alternative evidence in lieu of the person's credit history in determining whether to rent to that person. Alternative evidence could include things like government benefit payments, pay records, bank statements, commitments of financial assistance from nonprofits or service providers, etc. A requirement to consider alternative evidence is not a mandate to offer a rental to any specific tenant, and the bill clearly preserves ability of the housing provider to request employment information, landlord references, or other identity verification documents from the prospective tenant.

According to the Author

"Housing continues to be one of the top issues that Californians face. Shelter is fundamental, and when it becomes unstable or undependable, receiving a housing voucher after waiting four to five years on a wait list can seem like a panacea. However, with a 60-day time limit, those with poor credit are unlikely to find housing – creating a cycle of instability that can keep families in at-risk situations. Currently, credit scores are used by property owners to determine if someone might be a good tenant. However, research shows that credit scores can be sensitive, imperfect algorithms that make mistakes. In fact, studies have shown that credit scores are often low because families have prioritized paying their rent over other bills. When families receive housing vouchers, risk of nonpayment is greatly diminished. Still, poor credit scores, which are meant to be a measure of financial risk, are one of the top reasons individuals with housing vouchers are denied housing over other applicants. This bill provides a more accurate tool to help evaluate if a tenant will be able to pay their portion of the rent and allows them to be judged more fairly on their current circumstances."

Arguments in Support

According to Housing California, "Despite their common use as a tenant screening tool, research reveals several ways in which the use of credit reports and tenant screening algorithms may be problematic and raise racial equity concerns. People may have negative marks on their credit – such as evictions or unpaid bills – because they were previously severely rent burdened, and forgoing other important bills to pay for their housing until they were unable to sustain that housing. Indeed, rent-burden may be the very reason a person becomes eligible for rental assistance. As housing subsidies make housing affordable, other financial concerns may not persist. Additionally, while some property managers help tenants build credit history by reporting their rental payment history to credit bureaus, credit reports typically do not include rental payments, and often show only negative history of rental payments. For these reasons, requiring landlords to accept alternative evidence in lieu of a credit report may provide a more meaningful picture of a prospective tenant's ability to pay compared to a credit report."

Arguments in Opposition

According to the California Rental Housing Association, "Removing our ability to ask an applicant about their credit history diminishes our ability to properly evaluate applicants, which can create an 'apples to oranges' comparison amongst applicants. Such comparisons will require our members to process dissimilar financial information being provided by applicants, which may then subject us to charges of discrimination and violations of fair housing laws. Furthermore, the existing credit bureaus have been established as trusted sources of financial information for many years with established processes to correct any inaccurate information. Additionally, they also have cutting edge software to ensure privacy and prevent hacking. To think any alternative could rise to their level of accuracy and safety is extremely naïve at best."

FISCAL COMMENTS

According to the Assembly Appropriations Committee:

1. The Civil Rights Department (CRD) anticipates General Fund (GF) costs of $126,000 in fiscal year 2024-25, and $125,000 (GF) annually thereafter, for one position for its Enforcement Division to handle complaints from rental applicants who allege a housing provider either refused to accept the alternative evidence of ability to pay rent, or unreasonably assessed the alternative evidence. This estimate assumes CDR annually receives approximately 100 intakes and investigates 75 complaints involving the protections created by this bill, based on, but smaller than, the number of intakes and investigations CRD annually receives and conducts related to source-of-income discrimination in housing.
2. Ongoing cost pressures (GF, Trial Court Trust Fund) to the courts of an unknown amount in additional workload. This bill expands CRD's authority to file a civil action. Actual costs will depend on the number of new cases filed. The estimated workload cost of one hour of court time is $1,000. If five cases are filed statewide resulting 40 hours of court time for each case, costs would be approximately $200,000. Although courts are not funded on the basis of workload, increased pressure on the courts and staff may create a need for increased funding for courts to perform existing duties. Numerous trial court operations are funded through the imposition and collection of criminal fines and fees. However, the Legislature has reduced and eliminated criminal fines and fees over the past decade. As a result, the 2023-24 state budget includes an ongoing annual allocation of $105.1 million from the GF to backfill declining revenue to the Trial Court Trust Fund.

VOTES

SENATE FLOOR: 31-3-6

YES: Allen, Archuleta, Ashby, Atkins, Becker, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Laird, Limón, McGuire, Menjivar, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

NO: Jones, Niello, Seyarto

ABS, ABST OR NV: Alvarado-Gil, Blakespear, Min, Newman, Nguyen, Ochoa Bogh

ASM HOUSING AND COMMUNITY DEVELOPMENT: 6-1-1

YES: Wicks, Wendy Carrillo, Gabriel, Kalra, Quirk-Silva, Ward

NO: Joe Patterson

ABS, ABST OR NV: Sanchez

ASM JUDICIARY: 8-0-3

YES: Maienschein, Connolly, Haney, Kalra, Pacheco, Papan, Reyes, McKinnor

ABS, ABST OR NV: Essayli, Dixon, Sanchez

ASM APPROPRIATIONS: 12-3-1

YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Papan, Pellerin, Soria, Weber, Wilson

NO: Megan Dahle, Dixon, Mathis

ABS, ABST OR NV: Sanchez

UPDATED

VERSION: June 29, 2023

CONSULTANT: Nicole Restmeyer / H. & C.D. / (916) 319-2085 FN: 0001478

1. https://chpc.net/housingneeds/ ↑

2. https://www.cbpp.org/research/housing/federal-rental-assistance-fact-sheets#CA ↑

3. https://www.ftc.gov/sites/default/files/documents/reports/section-319-fair-and-accurate-credit-transactions-act-2003-fifth-interim-federal-trade-commission/130211factareport.pdf ↑

4. https://www.latimes.com/california/story/2023-01-05/for-first-time-california-civil-rights-officials-file-lawsuit-alleging-section-8-discrimination ↑

5. https://calmatters.org/housing/2022/08/california-housing-crisis-emergency-vouchers/ ↑

Date of Hearing: August 16, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

SBPCA Bill Id:SB 267

Author:(Eggman) – As Amended Ver:June 29, 2023

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill prohibits a housing provider from using a credit report from a prospective tenant who receives a government rental subsidy, without offering the applicant the option of providing, in lieu of a credit report, lawful, verifiable alternative evidence of the applicant’s reasonable ability to pay.

Specifically, this bill:

1. Makes it unlawful, under the Fair Employment and Housing Act (FEHA), for a housing provider, in instances in which there is a government rent subsidy, to use a person’s credit history as part of the application process for a rental unit without offering the applicant the option, at the applicant’s discretion, of providing lawful, verifiable alternative evidence of the applicant’s reasonable ability to pay the applicant’s portion of the rent, including, but not limited to, government benefit payments, pay records, and bank statements.
2. Requires the housing provider, if the applicant elects to provide lawful, verifiable evidence of the applicant’s reasonable ability to pay, do both of the following:
   1. Provide the applicant reasonable time to respond with the alternative evidence.
   2. Reasonably consider the alternative evidence in lieu of the person’s credit history in determining whether to offer the rental unit to the applicant.
3. Declares the provisions of this bill do not limit the ability of an owner of a housing accommodation to request information or documentation to verify employment, to request landlord references, or to verify the identity of a person.

FISCAL EFFECT:

1. The Civil Rights Department (CRD) anticipates General Fund (GF) costs of $126,000 in fiscal year 2024-25, and $125,000 (GF) annually thereafter, for one position for its Enforcement Division to handle complaints from rental applicants who allege a housing provider either refused to accept the alternative evidence of ability to pay rent, or unreasonably assessed the alternative evidence. This estimate assumes CDR annually receives approximately 100 intakes and investigates 75 complaints involving the protections created by this bill, based on, but smaller than, the number of intakes and investigations CRD annually receives and conducts related to source-of-income discrimination in housing.
2. Ongoing cost pressures (GF, Trial Court Trust Fund) to the courts of an unknown amount in additional workload. This bill expands CRD’s authority to file a civil action. Actual costs will depend on the number of new cases filed. The estimated workload cost of one hour of court time is $1,000. If five cases are filed statewide resulting 40 hours of court time for each case, costs would be approximately $200,000. Although courts are not funded on the basis of workload, increased pressure on the courts and staff may create a need for increased funding for courts to perform existing duties. Numerous trial court operations are funded through the imposition and collection of criminal fines and fees. However, the Legislature has reduced and eliminated criminal fines and fees over the past decade. As a result, the 2023-24 state budget includes an ongoing annual allocation of $105.1 million from the GF to backfill declining revenue to the Trial Court Trust Fund.

COMMENTS:

1. Purpose. This bill seeks to remove a barrier for low-income Californian’s seeking affordable housing by prohibiting a landlord from requiring a credit report as part of the application for government-subsidized rental housing, without first providing the option for alternative documentation showing an applicant’s ability to pay. According to the author:

Currently, credit scores are used by property owners to determine if someone might be a good tenant. However, research shows that credit scores can be sensitive, imperfect algorithms that make mistakes. In fact, studies have shown that credit scores are often low because families have prioritized paying their rent over other bills. When families receive housing vouchers, risk of nonpayment is greatly diminished. Still, poor credit scores, which are meant to be a measure of financial risk, are one of the top reasons individuals with housing vouchers are denied housing over other applicants. This bill provides a more accurate tool to help evaluate if a tenant will be able to pay their portion of the rent and allows them to be judged more fairly on their current circumstances.

1. Background. SB 329 (Mitchell), Chapter 600, Statutes of 2019, prohibited landlords from discriminating against prospective tenants who are recipients of federal Housing Choice Vouchers, also known as “Section 8 vouchers,” as well as other forms of government-administered rental housing assistance, such as Veterans Affairs Supportive Housing (VASH) vouchers. SB 329 also prohibited discrimination against renters who use local subsidies designed to combat rising homelessness.

The Section 8 program is administered by the U.S. Department of Housing and Urban Development (HUD), and locally by public housing authorities. The program enables low-income individuals and families to obtain subsidized housing through the private rental market. Under the Section 8 program, a tenant household generally pays 30% of its annual income towards rent, and the housing authority pays the rest. To qualify for a Section 8 voucher an individual’s or family’s income cannot exceed the guidelines established by HUD. As of January 2022, approximately 307,800 California households received Section 8 vouchers, and over a million Californians received some form of rental assistance to afford housing. Nationally only about one in four income-eligible households receive a voucher. Waiting lists of several years are common.

Consumer credit reports are used to assess an individual’s creditworthiness and contain information such as the amount of debt someone owes and on-time payment history. Rental property owners commonly use consumer credit report information to evaluate prospective tenants, including those who hold housing vouchers, for open rental units.

However, numerous studies suggest credit history is not a reliable proxy for ability to pay for rental housing, especially in the context of government-subsidized housing. This is due to the high rate of errors in consumer credit reports; inadequate reporting by landlords of renters’ housing payments to credit bureaus, resulting in credit reports that often show only negative rental payment history; and systemic bias in credit report information that may result in racial bias.

This bill allows landlords to request credit history from any applicant, but requires the landlord to accept alternative evidence of the applicant’s financial responsibility and ability to pay if an applicant with a government subsidy elects to provide such evidence in lieu of credit history.

1. Arguments in Support. The California Labor Federation writes in support:

Research has shown that many families have low credit scores because they prioritize rent instead of paying other bills. This information is not reflected in an applicant’s credit history but could be proven through alternative methods. Furthermore, credit scores become moot indicators of payment reliability in the voucher program. In this program, the government absorbs the risk of lost payment since the voucher program guarantees payment. [This bill] will increase access to housing for renters with housing vouchers by prohibiting property owners from using just credit history to deny tenancy and allows potential tenants to submit documentation showing their ability to pay.

1. Arguments in Opposition. The Southern California Rental Housing Association writes in opposition:

In most all government programs, the government does not pay all the tenant’s rent or other tenant bills and household expenses. Some government programs provide a limited amount of funding to cover a month or two of rent. If the tenant has to pay any portion of the rent as well as utilities and a government rent subsidy, the rental property owner must have some objective way of evaluating the tenant’s ability and willingness to pay their financial obligations, including their portion of the rent. By removing the existing objective criteria, [this bill] will make the application process much more challenging for tenant/applicants who receive a government subsidy. Without a way to verify the accuracy of financial information, the landlord has no way to know what risk exists for taking on the applicant.

1. Prior Legislation. SB 1335 (Eggman), of the 2021-22 Legislative Session, was substantially similar to this bill. SB 1335 was referred to, but never heard in, the Assembly Housing and Community Development Committee.

AB 2203 (Rivas), of the 2021-22 Legislative Session, would have prohibited requiring a consumer credit report as part of the application process for a rental housing accommodation in instances where there is a government rent subsidy. AB 2203 died on the inactive file on the Assembly Floor.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: July 11, 2023

ASSEMBLY COMMITTEE ON JUDICIARY

Brian Maienschein, Chair

SBPCA Bill Id:SB 267

Author:(Eggman) – As Amended Ver:June 29, 2023

SENATE VOTE: 31-3

SUBJECT: Credit history of persons receiving government rent subsidies

KEY ISSUE: SHOULD THE FAIR EMPLOYMENT AND HOUSING ACT BE AMENDED TO ENSURE tHAT PROSPECTIVE TENANTS CAN PROVIDE ALTERNATIVE EVIDENCE OF THEIR REASONABLE ABILITY TO RENT IN LIEU OF PROVIDING CREDIT REPORTS when APPLYING for GOVERNMENT-SUBSIDIZED RENTAL HOUSING?

SYNOPSIS

This bill would deem it an unlawful practice under the Fair Employment and Housing Act (FEHA) for a landlord to use a credit report from a prospective tenant who receives a government rental subsidy, without offering the applicant the option, at the applicant’s discretion, of providing lawful, verifiable alternative evidence of the applicant’s reasonable ability to pay in lieu of a credit report. In doing so, the bill recognizes an emerging truth: credit history is not a reliable proxy for ability to pay, especially in the context of government-subsidized housing. SB 267 builds on the progress this Legislature has made in reducing discrimination in housing, most recently with the adoption of SB 329 (Mitchell) Chap. 600, Stats. 2019, which prohibited discrimination against prospective tenants simply because they are voucher holders.

This measure is supported by a broad coalition of affordable-housing advocates and labor groups, including the Western Center on Law and Poverty and the California Labor Federation. This bill was approved by the Assembly Housing and Community Development with a 6-1 vote. Recent amendments taken by the author, and reflected in the analysis below, have removed most of the opposition. Some regional housing associations, such as the California Rental Housing Association, remain in opposition, arguing that this measure would make it more difficult for rental housing providers to properly evaluate applicants. As this analysis discusses, this concern ignores the fact that a tenant with poor credit and a voucher may be more likely to pay their rent on time than a tenant with better credit but no government-guaranteed subsidy.

SUMMARY: Makes it unlawful for housing providers, in instances where there is a government rent subsidy, to use a person’s credit history as part of the application process for a rental unit without offering the applicant the option of providing alternative evidence of their reasonable ability to pay the rent. Specifically, this bill:

1. Makes it unlawful in instances in which there is a government rent subsidy to use a person’s credit history as part of the application process for a rental unit without offering the applicant the option, at the applicant’s discretion, of providing lawful, verifiable alternative evidence of the applicant’s reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements.
2. Establishes that if the applicant elects to provide lawful, verifiable evidence of the applicant’s reasonable ability to pay, the housing provider must do both of the following:
   1. Provide the applicant reasonable time to respond with the alternative verifiable evidence described in 1).
   2. Reasonably consider that alternative evidence in lieu of the person’s credit history in determining whether to offer the rental accommodation to the applicant.
3. Declares that the provisions of this bill do not limit the ability of the owner of a housing accommodation to request information or documentation to verify employment, to request landlord references, or to verify the identity of a person.

EXISTING LAW:

1. Authorizes housing assistance payments, as part of the U.S. Housing Act of 1937, “[f]or the purpose of aiding low-income families in obtaining a decent place to live and of promoting economically mixed housing.” These assistance payments include, for example, Housing Choice Vouchers (HCVs) and HUD-VASH vouchers. (42 U.S.C. Section 1437f (a).)
2. Deems it unlawful under the California Fair Employment and Housing Act (FEHA), in connection with the provision of housing, to discriminate on the basis of source of income. (Government Code Section 12955 (a), (c)-(e), (h)-(l).)
3. Establishes the Department of Fair Employment and Housing (DFEH) in the Business, Consumer Services, and Housing Agency with the powers and duties to, among other things, receive, investigate, conciliate, mediate, and/or prosecute complaints relating to housing discrimination. (Government Code Sections 12901, 12930.)
4. Provides for enforcement of FEHA by DFEH, injured parties, and the Attorney General. (Government Code Sections 12980-12989.3.)
5. Limits a landlord’s use of financial or income standards to assess the eligibility of a prospective tenant to that portion of the rent that is to be paid by the tenant, in instances where a government subsidy is involved. (Government Code Section 12955 (o).)
6. Specifies that when a landlord or their agent receives a request to rent a residential property from an applicant, the landlord or agent may charge that applicant an application screening fee to cover the costs of obtaining information about the applicant which may include personal reference checks and consumer credit reports. (Civil Code Section 1950.6 (a).)
7. Defines a consumer credit report as any written, oral, or other communication of any information by a consumer credit reporting agency bearing on a consumer’s credit worthiness, credit standing, or credit capacity, which is used or is expected to be used, or collected in whole or in part, for the purpose of determining eligibility for specified uses including hiring of a dwelling unit. (Civil Code Section 1785.3 (c).)
8. Defines “source of income” under FEHA to mean lawful, verifiable income paid directly to a tenant or paid to a representative of a tenant. Clarifies that, under this definition, a landlord is not considered a representative of a tenant. (Government Code Sections 12927, 12955 (p)(1).)
9. Declares it to be against public policy, pursuant to FEHA, to practice discrimination in housing accommodations on the basis of race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, or genetic information; and declares further that every person has a civil right to seek, obtain, or hold housing without facing discrimination based on these protected classes. (Government Code Sections 12920, 12921 (b).)
10. Declares it unlawful, pursuant to FEHA, for the owner of any housing accommodation to inquire about; make known any preference or limitation as to; discriminate against; or harass, a person based on the person’s race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, or genetic information. (Government Code Section 12955 (a) - (c).)
11. Clarifies, for the purposes of FEHA that making a written or oral inquiry regarding the level or source of income does not constitute discrimination based on source of income. (Government Code Section 12955 (p)(2).)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: This bill would deem it an unlawful practice under the Fair Employment and Housing Act (FEHA) for a landlord to use a credit report from a prospective tenant who receives a government rental subsidy, without offering the applicant the option, at the applicant’s discretion, of providing lawful, verifiable alternative evidence of the applicant’s reasonable ability to pay in lieu of a credit report. In doing so, the bill recognizes an emerging truth: credit history is not a reliable proxy for ability to pay, especially in the context of government-subsidized housing. As explained by the author:

Housing continues to be one of the top issues that Californians face. Shelter is fundamental, and when it becomes unstable or undependable, receiving a housing voucher after waiting four to five years on a wait list can seem like a panacea. However, with a 60-day time limit, those with poor credit are unlikely to find housing – creating a cycle of instability that can keep families in at-risk situations. Currently, credit scores are used by property owners to determine if someone might be a good tenant. However, research shows that credit scores can be sensitive, imperfect algorithms that make mistakes. In fact, studies have shown that credit scores are often low because families have prioritized paying their rent over other bills. When families receive housing vouchers, risk of nonpayment is greatly diminished. Still, poor credit scores, which are meant to be a measure of financial risk, are one of the top reasons individuals with housing vouchers are denied housing over other applicants. This bill provides a more accurate tool to help evaluate if a tenant will be able to pay their portion of the rent and allows them to be judged more fairly on their current circumstances.

Background. With the adoption of SB 329 (Mitchell) Chap. 600, Stats. 2019, it became prohibited under California’s FEHA laws for landlords to discriminate against the way a renter will pay their rent. SB 329 prohibited landlords from discriminating against prospective tenants who are recipients of federal Housing Choice Vouchers, popularly known as “Section 8 vouchers,” as well as other forms of government-administered rental housing assistance, such as Veterans Affairs Supportive Housing (VASH) vouchers. SB 329 also prohibited discrimination against renters who use local subsidies designed to combat rising homelessness.

The Section 8 program is administered at the federal level by the U.S. Department of Housing and Urban Development (HUD), and at the local level by public housing authorities. The program ostensibly enables low-income individuals and families to obtain subsidized housing through the private rental market. Under the Section 8 program, a tenant household generally pays 30% of its annual income towards rent, with the housing authority paying the rest. (42 U.S.C. Section 1437f (o)(2), (3).) To qualify for a voucher, an individual’s or family’s income cannot exceed the guidelines established by HUD. As of 2022, approximately 307,800 California households received Section 8 vouchers, and over a million Californians received some form of rental assistance to afford housing. (See Center on Budget and Policy Priorities, Federal Rental Assistance Fact Sheets, available at https://www.cbpp.org/research/housing/federal-rental-assistance-fact-sheets#CA.) Federal rental assistance programs provided Californians with $7.8 million in 2020. (Id.)

The need for rental assistance still heavily outweighs the supply. Nationally only about one in four income-eligible households receive HCVs and waiting lists of several years are common. A 2021 report by the Center on Budget and Policy Priorities notes that nationally the average wait time is 2.5 years, though San Diego County had a wait time of over seven years at the end of 2020. (See Center on Budget and Policy Priorities, Families Wait Years for Housing Vouchers Due to Inadequate Funding (July 22, 2021), available at https://www.cbpp.org/research/housing/families-wait-years-for-housing-vouchers-due-to-inadequate-funding.)

For an applicant, the long and arduous process of securing a voucher is just the first step. The next challenge is finding a landlord who will accept the voucher. SB 329 made it unlawful for a landlord to decline an applicant, or treat a prospective tenant differently than other applicants, based only on the applicant’s receipt of housing assistance, but housing providers still have the right to screen all applicants according to their lawful tenant screening criteria. One of those lawful criteria is the applicant’s credit score. Rental property owners commonly use consumer credit report information to evaluate prospective tenants (including those who hold housing vouchers) for open rental units.

Credit scores in rental applications. Consumer credit reports are used to assess an individual’s creditworthiness and contain information such as the amount of debt someone owes and on-time payment history. These reports contain credit scores, which range from 300 (poor) to 850 (excellent). The purpose of today’s credit score system is to eliminate bias. Before credit scores, borrowers were deemed creditworthy by lenders using factors such as income, referrals and even home visits. In 1974, the Equal Credit Opportunity Act disallowed credit-score systems from using information like sex, race, marital status, national origin and religion. (15 U.S.C. Section 1691(a).) Today, credit scores considers payment history, amounts owed, length of credit history, new credit and credit mix in its model. But that data may be influenced by generational wealth that many Black and Hispanic borrowers did not have equal access to, says Frederick Wherry, professor of sociology and director of the Dignity and Debt Network at Princeton University. (Are credit scores a necessary evil? (Oct. 29, 2021), available at https://www.vox.com/the-goods/22736387/how-credit-scores-work-equifax-experian-transunion.)

According to Credit Sesame, more than half of Black Americans report having poor or fair credit, referred to a credit score below 640, or no credit at all. (Black and Hispanic Americans on the U.S. financial system: “The odds were always against me,” new Credit Sesame survey finds (Jan. 26, 2021), available at https://www.prnewswire.com/news-releases/black-and-hispanic-americans-on-the-us-financial-system-the-odds-were-always-against-me-new-credit-sesame-survey-finds-301215072.html.) Forty-one percent of Hispanic Americans, 37 percent of White Americans and 18 percent of Asian Americans fall into this category. (Id.)

Credit scores may be a poor indicator of ability to pay for rental housing. As noted by the Assembly Committee on Housing and Community Development’s analysis of this measure (p.4), consumer credit reports are known to have errors and a Federal Trade Commission study from 2012 found that more than 20 percent of individuals have potential material errors on their credit file. (Federal Trade Commission, Report to Congress (Dec. 2012), available at https://www.ftc.gov/sites/default/files/documents/reports/section-319-fair-and-accurate-credit-transactions-act-2003-fifth-interim-federal-trade-commission/130211factareport.pdf.) In addition to the high rate of errors in consumer credit reports, renters’ housing payments are also less likely to be considered in credit reports than are homeowners’. As noted in a 2019 study by HUD and the Policy and Economic Research Council (PERC)(https://huduser.gov/portal/publications/Potential-Impacts-of-Credit-Reporting.html):

For renters, the rental payment is often the single largest credit/contractual obligation. One of the blind spots of conventional consumer credit reports involves inadequate reporting of this major monthly payment (unlike mortgage payments which are typically reported to the Credit Reporting Agencies). As such, prospective borrowers who are renters likely will not have their credit standing benefit from their on-time rental payments but may be penalized from very late payments or unpaid balances.

Credit scores may be even less useful in the context of evaluating low-income housing applicants because of the now well-known adage that “the rent eats first.” (Desmond, Evicted: Poverty and Profit in the American City (Crown 2016) at 302.) In his Pulitzer-winning work, which increased mainstream understanding of the role housing insecurity plays in perpetuating poverty, Harvard sociologist Matthew Desmond explained:

The majority of poor families aren’t so lucky [as to have a housing voucher] and their children [in the families studied by Desmond] are not getting enough food because the rent eats first. In 2013, 1 percent of poor renters lived in rent-controlled units; 15 percent lived in public housing; and 17 percent received a government subsidy, mainly in the form of a rent-reducing voucher. The remaining 67 percent—2 of every 3 poor renting families—received no federal assistance. This drastic shortfall in government support…is the reason why poor renting families today spend most of their income on housing. (Id. at 302-303.)

The fact that families who rent will prioritize keeping a roof over their heads over even feeding their children is a dramatic illustration of why being late on, say, a credit card bill says very little about whether tenants will pay their highest priority—the rent—on time. This is particularly true of subsidized tenants, because they have more resources with which to pay the rent, and risk losing their vouchers if they are evicted and cannot find new housing within 120 days.

Opposition to this bill relies on the maxim that past is prologue, and that someone’s credit history is the best predictor of their likelihood to pay in the future. They argue:

Analyzing a credit report is not about determining whether a person is high-income or low-income. It demonstrates how an individual has managed debt in the past. It demonstrates the level of risk the individual poses to a borrower or to a rental property owner. If an individual has a history of making on-time payments and managing debt responsibly, they will likely have good credit.

Indeed, having “good” credit affects various aspects of one’s lives, from where they live, to what they drive, to the interest they pay for a wide range of consumer goods. While credit scores as a proxy for financial reliability is ubiquitous across our economy, that fundamental truism has recently been called into question.

The idea that credit reports and credit scores show how “responsible” a person is largely belied by the fact that credit histories correlate with household income. Even credit reporting agencies make this point. An article published by Experian notes: “To the extent a steady income enables you to keep up with your debt payments and to use credit responsibly, income is important to building and maintaining healthy credit scores.” (Akin, Does Income Affect Credit Scores?, Experian (Mar. 5, 2020), available at https://www.experian.com/blogs/ask-experian/does-income-affect-credit-scores/.) Academic research reaches the same conclusions, with researchers citing the “strong positive relation between income and credit scores.” (See Albanesi, et. al, Credit Growth and the Financial Crisis: A New Narrative (Aug. 20, 2020) at 9, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3683219.) People with enough money to pay their bills tend to pay all of their bills on time, and therefore have good credit histories. People who do not have enough money to pay their bills pay the rent first (per Desmond, supra), and then choose between their other bills, meaning they often have spotty credit histories. People who qualify for housing vouchers are by definition people who do not have much money, which is what, for the most part, a landlord is going to find by looking at their credit reports—the danger is that landlords will characterize what they find as a proxy for “responsibility,” rather than for the difficult choices lower-income Californians make after paying the rent. This bill would help limit that danger.

Credit reports are not only a poor proxy for evaluating subsidized housing applicants, they can be downright counterproductive to a landlord who is trying to secure reliable, timely rent payments. Since the government is a reliable payer of the majority of the voucher-holder’s rent, and this factor is not reflected in a credit report, a tenant with poor credit and a voucher may be more likely to pay their rent on time than a tenant with better credit but no government-backed subsidy.

Before being referred to this Committee, this bill was heard and passed by the Assembly Housing and Community Development Committee (Housing Committee). By passing the bill, the Housing Committee has made clear its policy judgment that enabling applicants for subsidized housing to provide alternative evidence of ability to pay would improve the availability and condition of housing in this state. The analysis thus turns to the question squarely within its jurisdiction –whether codification in FEHA is the proper means of enacting this legislation.

FEHA and prohibitions against housing discrimination. This Committee has jurisdiction over legislation amending any of California’s civil rights statutes, including but not limited to, the Unruh Civil Rights Act (Civil Code Section 51) (prohibiting discrimination in business establishments), the Bane Civil Rights Act (Civil Code Section 52.1) (prohibiting the use of threats, intimidation, or coercion to prevent another from exercising a constitutional or statutory right), the Ralph Civil Rights Act (Civil Code Section 51.7) (prohibiting violence or intimidation against another based on protected characteristics), and FEHA. FEHA includes prohibitions on housing discrimination that are closely related to this bill’s mandate requiring landlords to use, at the voucher holder’s discretion, alternative evidence of reasonable ability to pay in lieu of credit reports; for that reason, it makes sense to implement the policy in FEHA, rather than elsewhere in the Civil Code or Government Code.

FEHA’s existing prohibition against source of income discrimination. In 1999, this Legislature barred landlords from discriminating against prospective tenants based on the sources of their income, including income from social security, CalWORKS, disability benefits, etc. (AB 1001 (Villaraigosa) Chap. 592, Stats. 1999); SB 1145 (Burton) Chap. 568, Stats. 2004.) On January 1, 2020, source of income protections were expanded to make it unlawful for housing providers in California to discriminate against prospective tenants simply because they are voucher holders. (SB 329 (Mitchell).) It should be noted that nothing in SB 329 prevents a landlord from denying a tenant with a voucher for other reasons, including if the rent was in excess of what the household could afford, even with a housing voucher. These policies are meant to help house tenants by overcoming negative stereotypes about voucher-holders and other recipients of public benefits. Essentially, housing providers now have to consider each applicant on their merits, regardless of whether they receive government assistance.

FEHA’s existing prohibition against consideration of ability to pay subsidized portion of rent. The second related prohibition is for landlords, when evaluating ability to pay, to consider anything beyond a prospective tenant’s ability to pay the portion of the rent that is their responsibility. To illustrate how this works, consider a landlord who will not rent to prospective tenants unless their gross income is at least three times the rent. If the rent for the unit is $2000 per month, a prospective tenant would ordinarily need to earn at least $6000 to qualify under the landlord’s standard. However, assume that a prospective tenant only has a gross income of $1500 per month because, say, they subsist on disability benefits. In this situation, the tenant would be expected to pay $450 per month towards rent, while the housing authority would pay the remaining $1550 per month. Under FEHA, as it currently exists, a landlord may only consider whether the prospective tenant can afford the $450 per month that they are required to pay, not the full $2000, since the housing authority covers the other $1550.

This bill allows landlords to request credit history from any applicant, but requires the landlord to accept alternative evidence of the applicant’s financial responsibility and ability to pay if an applicant with a government subsidy elects to provide such evidence in lieu of credit history. This bill is similar to AB 2203 (L. Rivas, 2022), legislation which would have prohibited use of an individual’s credit history when a government rent subsidy is involved. However, this bill uses a different framework and does not fully prohibit housing providers from using credit history when evaluating a prospective tenant receiving a government rent subsidy. Instead, while landlords can request credit history from any applicant under this bill, they must accept and consider alternative evidence of the applicant’s financial responsibility and ability to pay if an applicant has a government rent subsidy.

Under this approach, the applicant must choose whether to submit alternative evidence of financial responsibility and ability to pay to the landlord. The bill specifies that the alternative evidence must be verifiable and lawful and includes government benefit payments, pay records, and bank statements. The tenant with the housing subsidy also gets to decide what alternative evidence to present, eliminating concerns that the process could lead to a fishing expedition through the applicant’s financial records. The landlord’s obligation would be to accept this evidence in lieu of credit history. In other words, so long as the applicant offers some alternative evidence of financial responsibility and ability to pay, the landlord could not reject that applicant for failure to provide a credit history. The landlord retains their discretion in evaluating the weight of the alternative evidence and in deciding whether to accept any rental application. This modest measure therefore does not guarantee that those with poor credit will more easily secure housing, but it enables them to start that application process without the handicap that a low credit score would invariably impose.

ARGUMENTS IN SUPPORT: The California Labor Federation supports this measure:

California faces a housing crisis. Increasing housing supply is critical, but so is increasing access to affordable rental units. Section 8 housing vouchers assist nearly two million Americans find stable shelter. Families must apply for the subsidy and when they receive a housing voucher, they have approximately 60 days to find a home. After 60 days, access to that voucher is lost, and extensions are rarely granted. Any barrier to securing a rental unit means renters are put back on a list with long wait periods before they have another chance at another voucher.

The use of credit reports and history creates an unnecessary barrier to renters. California already has a law prohibiting the use of credit scores or history in hiring that was signed into law in 2011, during the Great Recession. The Labor Federation sponsored that bill because Californians could no longer pay their mortgages, rent, or other bills hurting their credit scores even though it was during a global economic meltdown. Evidence showed that credit scores have little correlation with job performance and unfairly deny employment to workers that need it the most.

Similarly for renters, research has shown that many families have low credit scores because they prioritize rent instead of paying other bills. This information is not reflected in an applicant’s credit history but could be proven through alternative methods. Furthermore, credit scores become moot indicators of payment reliability in the voucher program. In this program, the government absorbs the risk of lost payment since the voucher program guarantees payment.

SB 267 will increase access to housing for renters with housing vouchers by prohibiting property owners from using just credit history to deny tenancy and allows potential tenants to submit documentation showing their ability to pay.

Similar arguments are raised by Housing California:

Individuals using housing subsidies go into the housing market with a stereotype attached to their applications. Due to economic marginalization, people with housing subsidies often have low credit, poor credit, or no credit scores and face discrimination in the rental market. While discrimination against people with subsidies as their source of income is unlawful in California, discrimination on the basis of credit history can be an additional reason why landlords refuse to accept tenants, even though their subsidy guarantees most if not all of the rent is paid by a public entity. These issues result in many people losing access to housing vouchers when they cannot find housing quick enough. Across the state, as many as 13% of federal vouchers may be returned to the federal government because no tenant has been able to utilize the voucher over the course of a year.

Despite their common use as a tenant screening tool, research reveals several ways in which the use of credit reports and tenant screening algorithms may be problematic and raise racial equity concerns. People may have negative marks on their credit - such as evictions or unpaid bills - because they were previously severely rent burdened, and forgoing other important bills to pay for their housing until they were unable to sustain that housing. Indeed, rent-burden may be the very reason a person becomes eligible for rental assistance. As housing subsidies make housing affordable, other financial concerns may not persist. Additionally, while some property managers help tenants build credit history by reporting their rental payment history to credit bureaus, credit reports typically do not include rental payments, and often show only negative history of rental payments. For these reasons, requiring landlords to accept alternative evidence in lieu of a credit report may provide a more meaningful picture of a prospective tenant’s ability to pay compared to a credit report. SB 267 would help mitigate a potential barrier to housing, and in turn remove a significant obstacle to efforts to end our affordable housing and homelessness crisis.

ARGUMENTS IN OPPOSITION: The Southern California Rental Housing Association opposes this measure:

SB 267 allows a tenant/applicant to produce undefined “alternative evidence” to demonstrate their ability to pay. One of the only objective ways to understand tenant/applicants’ ability to pay their portion of the rent and to understand their past actions at rental property is for the rental property owner to utilize a credit report and an eviction report. These reports are produced by third-party credit reporting companies that have no affiliation with a rental housing provider. A tenant/applicant has the ability to obtain a copy of their credit report and has the ability to challenge any information in the report that they believe to be inaccurate before, during, and after the rental application process.

Pulling a credit report is not about determining whether a person is high-income or low-income. It demonstrates how an individual has managed debt in the past. It demonstrates the level of risk the individual poses to a borrower or to a rental property owner. If an individual has a history of making on- time payments and managing debt responsibly, they will likely have good credit. 

In most all government programs, the government does not pay all the tenant’s rent or other tenant bills and household expenses. Some government programs provide a limited amount of funding to cover a month or two of rent. If the tenant has to pay any portion of the rent as well as utilities and a government rent subsidy, the rental property owner must have some objective way of evaluating the tenant’s ability and willingness to pay their financial obligations, including their portion of the rent.

By removing the existing objective criteria, SB 267 will make the application process much more challenging for tenant/applicants who receive a government subsidy. Without a way to verify the accuracy of financial information, the landlord has no way to know what risk exists for taking on the applicant.

REGISTERED SUPPORT / OPPOSITION:

Support

California Housing Partnership
California Labor Federation, AFL-CIO

California School Employees Association
Housing California
National Association of Social Workers, California Chapter
The People Concern

Opposition

California Rental Housing Association

Southern California Rental Housing Association

Analysis Prepared by: Shiran Zohar / JUD. / (916) 319-2334

Date of Hearing: June 28, 2023

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

Buffy Wicks, Chair

SBPCA Bill Id:SB 267

Author:(Eggman) – As Amended Ver:June 20, 2023

SENATE VOTE: 31-3

SUBJECT: Credit history of persons receiving government rent subsidies

SUMMARY: Declares it unlawful for housing providers, in instances where there is a government rent subsidy, to use a person’s credit history as part of the application process for a rental unit without offering the applicant the option of providing alternative evidence of their reasonable ability to pay the rent. Specifically, this bill:

1. Declares it unlawful in instances in which there is a government rent subsidy to use a person’s credit history as part of the application process for a rental unit without offering the applicant the option, at the applicant’s discretion, of providing lawful, verifiable alternative evidence of the applicant’s reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements.
2. Requires the offerer to give the applicant reasonable time to respond with that alternative evidence, if the option to provide alternative evidence of reasonable ability to pay is offered to an applicant.
3. Requires the housing provider to reasonably consider that alternative evidence in lieu of the person’s credit history in determining whether to offer the rental unit to the applicant, if the applicant elects to provide alternative evidence.
4. Declares that the provisions of this bill do not limit the ability of the owner of a housing accommodation to request information or documentation to verify employment, to request landlord references, or to verify the identity of a person.

EXISTING LAW:

1. Authorizes housing assistance payments, as part of the U.S. Housing Act of 1937, “[f]or the purpose of aiding low-income families in obtaining a decent place to live and of promoting economically mixed housing.” These assistance payments include, for example, Housing Choice Vouchers (HCVs) and HUD-VASH vouchers. (42 U.S.C. § 1437f(a))
2. Prohibits various specified forms of housing discrimination, as part of the California Fair Employment and Housing Act (FEHA), on the basis of protected categories including race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, veteran or military status, or genetic information, whether actual or perceived. (Government Code (GC) Section 12955(a)-(e), (h), (i), (k), and (l))
3. Limits a landlord’s use of financial or income standards to assess the eligibility of a prospective tenant to that portion of the rent that is to be paid by the tenant, in instances where a government subsidy is involved. (GC 12955(o))
4. Specifies that when a landlord or their agent receives a request to rent a residential property from an applicant, the landlord or agent may charge that applicant an application screening fee to cover the costs of obtaining information about the applicant which may include personal reference checks and consumer credit reports. (Civil Code (CC) Section 1950.6(a))
5. Defines a consumer credit report as any written, oral, or other communication of any information by a consumer credit reporting agency bearing on a consumer’s credit worthiness, credit standing, or credit capacity, which is used or is expected to be used, or collected in whole or in part, for the purpose of determining eligibility for specified uses including hiring of a dwelling unit. (CC 1785.3(c))

FISCAL EFFECT: Unknown.

COMMENTS:

Author’s Statement: According to the author, “Housing continues to be one of the top issues that Californians face. Shelter is fundamental, and when it becomes unstable or undependable, receiving a housing voucher after waiting four to five years on a wait list can seem like a panacea. However, with a 60-day time limit, those with poor credit are unlikely to find housing – creating a cycle of instability that can keep families in at-risk situations. Currently, credit scores are used by property owners to determine if someone might be a good tenant. However, research shows that credit scores can be sensitive, imperfect algorithms that make mistakes. In fact, studies have shown that credit scores are often low because families have prioritized paying their rent over other bills. When families receive housing vouchers, risk of nonpayment is greatly diminished. Still, poor credit scores, which are meant to be a measure of financial risk, are one of the top reasons individuals with housing vouchers are denied housing over other applicants. This bill provides a more accurate tool to help evaluate if a tenant will be able to pay their portion of the rent and allows them to be judged more fairly on their current circumstances.”

California’s Housing Crisis: California is in the midst of a housing crisis. Over two-thirds of low-income renters are paying more than 30 percent of their income toward housing, a “rent burden” that means they have to sacrifice other essentials such as food, transportation, and health care.^[1] In 2022, over 170,000 Californians experienced homelessness on a given night.^[2]

The crisis is driven in large part by the lack of affordable rental housing for lower income people. According to the California Housing Partnership Corporation’s (CHPC)’s Housing Need Dashboard, in the current market, nearly two million extremely low-income and very low-income renter households are competing for roughly 683,000 available and affordable rental units in the state. Over three-quarters of the state’s extremely low-income households and over half of the state’s very low-income households are severely rent-burdened, paying more than 50 percent of their income toward rent each month. CHPC estimates that the state needs an additional 1.2 million housing units affordable to very low-income Californians to eliminate the shortfall.^[3] By contrast, production in the past decade has been under 100,000 units per year – including less than 10,000 units of affordable housing per year.^[4]

The Housing Choice Voucher Program: The HCV program is the largest rental assistance program in the country, first established in 1974 under Section 8 of the United States Housing Act of 1937. More than five million people in over two million low-income households use vouchers nationwide, including 307,800 California households as of January 2022.^[5] A key feature of the HCV program is that the program relies on private landlords to accept voucher recipients as tenants, and the federal government covers the portion of rent that exceeds 30 percent of the tenant’s income. Because the amount of funding provided for the HCV program is limited, far more low-income people qualify for a voucher than actually receive one – and even fewer of those who receive one can successfully find a landlord in the private market willing to accept the voucher. While the voucher generally covers the portion of the tenant’s rent that exceeds 30 percent of their income, there are payment standards for metro areas that determine how much rent beyond 30 percent the HCV is allowed to cover. Payment standards are based on fair market rents that HUD calculates each year for middle-range housing units in an area.

The HCV program is administered by public housing authorities (PHAs), which are independent public entities created by state law and almost entirely funded by the federal government. Some PHAs also own and develop affordable housing. In addition to administering “tenant-based” HCVs and specialty vouchers like HUD-VASH, PHAs can also choose to “project-base vouchers” (PBVs) or dedicate up to 20 percent (in some cases up to 30 percent) of their vouchers to specific units in an affordable or supportive housing development.

Due to the mismatch between the number of eligible low-income households and the amount of HCVs available in each region, most PHAs require applicants to join a voucher waitlist, which is intended to filter people into the program as vouchers become available. However, in practice, because the HCV program is so impacted and there is such a lack of naturally occurring affordable housing (NOAH) in the state, many people wait years on a voucher waitlist, and some PHAs have had their waitlists closed for years and only open them for extremely brief periods of time due to overwhelming demand.^[6]

Vouchers should be a lifeline for families who finally receive them after months or years on the waitlist – but California’s voucher recipients increasingly face significant barriers to using their vouchers because they have trouble competing in the state’s competitive rental housing market, and because the state continues to lose NOAH properties.

Once a tenant receives a voucher they have a limited amount of time to secure housing, typically between 60 and 120 days. Voucher holders apply directly to rental housing openings and they are responsible for covering the costs associated with rental housing applications. However, many voucher recipients lose their subsidy because it can be difficult to pass the screening criteria that rental housing providers impose.

Background on Consumer Credit Reports: Consumer credit reports are used to assess an individual’s creditworthiness and contain information such as the amount of debt someone owes and on-time payment history. Rental property owners commonly use consumer credit report information to evaluate prospective tenants for open rental units. However, consumer credit reports are known to have errors and a Federal Trade Commission study from 2012 found that more than 20 percent of individuals have potential material errors on their credit file.^[7] In addition to the high rate of errors in consumer credit reports, renters’ housing payments are also less likely to be considered in credit reports than are homeowners’. As noted in a 2019 study by HUD and the Policy and Economic Research Council (PERC):^[8]

“For renters, the rental payment is often the single largest credit/contractual obligation. One of the blind spots of conventional consumer credit reports involves inadequate reporting of this major monthly payment (unlike mortgage payments which are typically reported to the Credit Reporting Agencies). As such, prospective borrowers who are renters likely will not have their credit standing benefit from their on-time rental payments but may be penalized from very late payments or unpaid balances.”

In addition to the fact that renters’ housing payments are generally excluded from consumer credit information, housing voucher holders who face long searches to find suitable rental housing can actually see their credit score decline. Because voucher holders must pay rental housing application fees on their own, the cost of searching for and applying to suitable housing can add up quickly given that state law allows application fees of up to approximately $55. Other costs related to finding rental housing include travel expenses and potential lost income if voucher holders need to take time off work to view units.

Credit declines due to a prolonged rental housing search can happen at least three ways: first, as rental application fees and search-related costs add up, voucher holders are left with less money to cover their other expenses like food, car payments, and housing costs. If the cost of their housing search causes individuals to fall behind on any other payment obligations then their credit score can be negatively impacted. Secondly, even if a voucher recipient continues making all their payments on time, simply using more of one’s available line of credit can also lower an individual’s credit score. That is due to the fact that major credit reporting agencies weight an individual’s credit utilization ratio (the percentage of one’s available credit being used) as approximately 30 percent of one’s credit score.

The third way that a prolonged housing search can hurt a voucher holder’s credit is through “hard credit pulls” that property owners may do as part of the rental housing application process. A hard credit pull lowers an individual’s credit score and voucher holders that end up applying to many different properties are especially likely to see their credit scores decline due to multiple hard credit pulls.

Issues with Landlord Participation in the HCV System: While there are a variety of factors contributing to the challenges voucher-holders face in finding a home, a major factor is hesitation or unwillingness on the part of landlords to rent to voucher recipients. For years, many landlords refused even to consider tenants with vouchers, commonly listing “No Section 8” or other prohibitive language in rental listings intended to block voucher holders from applying, or attaching discriminatory conditions or higher rent charges solely to voucher holders. In 2019 California enacted SB 329 (Mitchell), Chapter 600, which prohibited landlords from this kind of source of income discrimination against tenants who rely upon governmental rental assistance, including HCVs, to help them pay the rent. Under that law, landlords are not required to rent to every HCV or rental-assisted household, but cannot blanket refuse to consider tenants who apply for a vacant unit merely because they have a voucher. Landlords also cannot charge higher rent to voucher holders or deny them access to common areas or amenities. The Civil Rights Department recently filed its first lawsuit under the bill against two Sacramento landlords who attempted to extract illegal additional monthly payments from their voucher-holding tenant, and eventually illegally threatened, harassed, and evicted her because she paid with a HCV.^[9]

Some PHAs have created robust landlord engagement programs to entice landlords to consider voucher recipients as tenants. In recent years, HUD has offered new flexibilities to PHAs to boost the success of the HCV program, including allowing PHA administrative funding to be used for housing navigation and landlord incentives.^[10] Landlord incentives are benefits offered to private landlords to induce them to seek out voucher recipients as possible tenants, or to hold units open for voucher recipients while federally mandated inspections or other approvals are obtained prior to a lease-up. These include signing bonuses, larger security deposits, the hiring of landlord engagement staff who are available in case any issues arise, and more. They have shown success at increasing the amount of housing units that are available to voucher recipients seeking housing, including in the recent federal Emergency Housing Voucher program.^[11]

An additional challenge facing voucher holders, as previously discussed, is that many landlords run an applicant’s credit history, regardless of whether most or all of the tenant’s rent will be paid by government subsidy or not. For some of the same reasons that they qualify for the housing subsidy in the first place, low-income households also frequently have bad credit or simply no credit history at all. As a result, although having a housing subsidy voucher greatly increases the likelihood that tenants will regularly pay the rent on time and in full, their credit histories prevent many voucher holders from ever getting their foot in the door in the first place.

This bill would require a housing provider, if they choose to run a credit check on an applicant with a government subsidy, to also provide the applicant the opportunity to share lawful, verifiable alternative evidence of their ability to pay their portion of the rent. The housing provider must give reasonable time to the applicant to respond with that alternative evidence, and must reasonably consider that alternative evidence in lieu of the person’s credit history in determining whether to rent to that person. Alternative evidence could include things like government benefit payments, pay records, bank statements, commitments of financial assistance from nonprofits or service providers, etc. A requirement to consider alternative evidence is not a mandate to offer a rental to any specific tenant, and the bill clearly preserves ability of the housing provider to request employment information, landlord references, or other identity verification documents from the prospective tenant.

Arguments in Support: According to Housing California, “Despite their common use as a tenant screening tool, research reveals several ways in which the use of credit reports and tenant screening algorithms may be problematic and raise racial equity concerns. People may have negative marks on their credit – such as evictions or unpaid bills – because they were previously severely rent burdened, and forgoing other important bills to pay for their housing until they were unable to sustain that housing. Indeed, rent-burden may be the very reason a person becomes eligible for rental assistance. As housing subsidies make housing affordable, other financial concerns may not persist. Additionally, while some property managers help tenants build credit history by reporting their rental payment history to credit bureaus, credit reports typically do not include rental payments, and often show only negative history of rental payments. For these reasons, requiring landlords to accept alternative evidence in lieu of a credit report may provide a more meaningful picture of a prospective tenant’s ability to pay compared to a credit report.”

Arguments in Opposition: According to the California Rental Housing Association, “Removing our ability to ask an applicant about their credit history diminishes our ability to properly evaluate applicants, which can create an ‘apples to oranges’ comparison amongst applicants. Such comparisons will require our members to process dissimilar financial information being provided by applicants, which may then subject us to charges of discrimination and violations of fair housing laws. Furthermore, the existing credit bureaus have been established as trusted sources of financial information for many years with established processes to correct any inaccurate information. Additionally, they also have cutting edge software to ensure privacy and prevent hacking. To think any alternative could rise to their level of accuracy and safety is extremely naïve at best.”

Committee Amendments: The committee may wish to consider the following technical amendment to clarify and keep consistent references in the bill to housing providers:

Government Code Section 12955.(B)(i)(I) Use a person’s credit history as part of the application process for a rental accommodation without offering the applicant the option, at the applicant’s discretion, of providing lawful, verifiable alternative evidence of the applicant’s reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements.

(II) If the option to provide alternative evidence of reasonable ability to pay is offered to an applicant pursuant to subclause (I), the offerer shall give the applicant reasonable time to respond with that alternative evidence.

(ii) If the applicant elects to provide alternative evidence of reasonable ability to pay pursuant to clause (i), the housing provider shall do both of the following:

1. Provide the applicant reasonable time to respond with that alternative evidence.
2. Rreasonably consider that alternative evidence in lieu of the person’s credit history in determining whether to offer the rental accommodation to the applicant.

(2) This subdivision does not limit the ability of the owner of a housing accommodation to request information or documentation to verify employment, to request landlord references, or to verify the identity of a person.

Related Legislation:

AB 653 (Reyes) of the current legislative session creates the Federal Housing Voucher Acceleration Program. This bill is currently pending before the Senate Housing Committee.

SB 1335 (Eggman) of 2022 was substantially similar to this bill. This bill died pending a hearing in this committee.

AB 2203 (L. Rivas) of 2022 would have made it unlawful for a housing provider to require a consumer credit report as part of the application process for a rental housing unit in instances when an applicant has a government rent subsidy. This bill died pending a vote on the Assembly Floor.

AB 2527 (Quirk-Silva) of 2022 would have prohibited the use of a consumer credit report in the renting of a dwelling unit, among other provisions. This bill died pending referral at the Assembly Desk.

SB 329 (Mitchell), Chapter 600, Statutes of 2019: Prohibited landlords from source of income discrimination against tenants who rely upon governmental rental assistance, including HCVs, to help them pay the rent.

Double Referred: This bill was also referred to the Assembly Committee on Judiciary, where it will be heard should it pass out of this committee.

REGISTERED SUPPORT / OPPOSITION:

Support

California Housing Partnership
California Labor Federation, AFL-CIO

California School Employees Association
Housing California
National Association of Social Workers, California Chapter
The People Concern

Opposition

California Rental Housing Association

Southern California Rental Housing Association

Analysis Prepared by: Nicole Restmeyer / H. & C.D. / (916) 319-2085

1. https://chpc.net/housingneeds/ ↑

2. https://www.huduser.gov/portal/sites/default/files/pdf/2022-AHAR-Part-1.pdf ↑

3. https://chpc.net/housingneeds/ ↑

4. https://www.hcd.ca.gov/policy-research/housing-challenges.shtml ↑

5. https://www.cbpp.org/research/housing/federal-rental-assistance-fact-sheets#CA ↑

6. NOAH is unsubsidized multifamily housing where rents are naturally affordable to low-income housing, in contrast to subsidized affordable housing that is regulated by agreements with government agencies. The California Housing Partnership Corporation estimates 120,000 NOAH homes have already been lost statewide since 2020 and 324,000 additional NOAH homes are at risk in 2024, due in part to increases in private equity firms acquiring and converting them to market rents ↑

7. https://www.ftc.gov/sites/default/files/documents/reports/section-319-fair-and-accurate-credit-transactions-act-2003-fifth-interim-federal-trade-commission/130211factareport.pdf ↑

8. https://huduser.gov/portal/publications/Potential-Impacts-of-Credit-Reporting.html ↑

9. https://www.latimes.com/california/story/2023-01-05/for-first-time-california-civil-rights-officials-file-lawsuit-alleging-section-8-discrimination ↑

10. https://www.hud.gov/sites/dfiles/PIH/documents/PIH2022-18.pdf ↑

11. https://calmatters.org/housing/2022/08/california-housing-crisis-emergency-vouchers/ ↑

 THIRD READING  

Bill No: SB 267

Author: Eggman (D)

Amended: 5/18/23

Vote: 21

SENATE JUDICIARY COMMITTEE: 8-1, 3/28/23

AYES: Umberg, Wilk, Allen, Ashby, Caballero, Durazo, Laird, Wiener

NOES: Niello

NO VOTE RECORDED: Min, Stern

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/18/23

AYES: Portantino, Ashby, Bradford, Wahab, Wiener

NOES: Jones, Seyarto

SUBJECT: Credit history of persons receiving government rent subsidies

SOURCE: Author

DIGEST:

This bill prohibits a landlord, in instances involving a government rent subsidy, from using credit history as part of the rental housing application process unless the landlord offers the applicant the option to provide lawful, verifiable alternative evidence of reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements.

ANALYSIS:

Existing law:

1. Authorizes housing assistance payments, as part of the U.S. Housing Act of 1937, “[f]or the purpose of aiding low-income families in obtaining a decent place to live and of promoting economically mixed housing.” (42 U.S.C. § 1437f(a).)
2. Prohibits various specified forms of housing discrimination, as part of the California Fair Employment and Housing Act (FEHA), on the basis of protected categories including race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, veteran or military status, or genetic information, whether actual or perceived. (Gov. Code § 12955(a)-(e), (h), (i), (k), and (l).)
3. Limits a landlord’s use of financial or income standards to assess the eligibility of a prospective tenant to that portion of the rent that is to be paid by the tenant, in instances where a government subsidy is involved. (Gov. Code § 12955(o).)

This bill:

1. Makes it unlawful, in instances where there is a government rent subsidy, for a housing provider to use a person’s credit history as part of the application process for a rental accommodation without offering the applicant the option, at the applicant’s discretion, of providing lawful, verifiable alternative evidence of reasonable ability to pay the portion of the rent to be paid by the tenant, including, but not limited to, government benefit payments, pay records, and bank statements. If the option to provide alternative evidence of reasonable ability to pay is offered to an applicant then the offerer shall give the applicant adequate time to respond with that alternative evidence.
2. Specifies that if the applicant elects to provide alternative evidence of reasonable ability to pay then the housing provider shall reasonably consider that alternative evidence in lieu of the person’s credit history in determining whether to offer the rental accommodation to the applicant.
3. Provides that the above provisions do not limit the ability of the owner of a housing accommodation to request information or documentation to verify employment, to request landlord references, or to verify the identity of a person.
4. Makes other technical, non-substantive changes.

Comments

Subsidized housing vouchers can be an effective tool for addressing homelessness

Evidence suggests that subsidized housing vouchers are among the most effective tools for addressing homelessness. A 2015 U.S. Department of Housing and Urban Development study concluded that, of several alternative methods for addressing family homelessness, subsidized housing vouchers are the most successful.^[1] The study tracked families for 18 months after the respective housing interventions. According to a synopsis of the study:

Compared to families in homeless shelters that received no extra help under the study, families given vouchers were:

• 56 percent less likely to experience another episode of homelessness;
• 55 percent less likely to report incidents of domestic violence; and
• 42 percent less likely to have their children placed in foster care or temporarily housed with other family members.

Families with vouchers also had 16 percent fewer absences from school or child care for their children.

The other forms of assistance tested, community-based rapid re-housing and project-based transitional housing, had few significant effects on homelessness and only scattered effects on other outcomes.^[2]

These conclusions are consistent with other research that has shown housing vouchers to be an effective way to address homelessness and its consequences.^[3]

Multiple factors currently limit the effectiveness of subsidized housing vouchers as a tool for combatting homelessness

Though subsidized housing vouchers show considerable promise as a tool for combatting homelessness, several factors currently conspire to limit their success.

For one thing, many landlords refuse even to consider tenants if the tenants have vouchers. This refusal was the target of SB 329 (Mitchell, Ch. 600, Stats. 2019), which expanded FEHA’s definition of “source-of-income” to prohibit such discrimination. Unfortunately, it appears that many landlords have simply ignored that law,^[4] though that may begin to change now that California’s Civil Rights Department has begun more proactive enforcement.^[5] A second problem that limits the ability of housing vouchers to address homelessness is that demand for housing assistance vouchers far exceeds the supply. The waiting lists for housing choice vouchers in many cities are notoriously long. In 2017, for example, the Los Angeles’ Public Housing Authority estimated that it would take 11 years from the time an Angeleno signed up for a housing choice voucher until the person actually received a voucher.^[6] A third factor is the high cost of finding and applying for housing, both in terms of time and money.^[7]

The last major factor undermining the effectiveness of housing vouchers as a tool for combatting homelessness is that many landlords insist upon checking an applicant’s credit history, regardless of whether most of the tenant’s rent will be paid by government subsidy or not. For some of the same reasons that they qualify for the housing subsidy in the first place, low-income households also frequently have bad credit or simply no credit history at all. As a result, although having a housing subsidy voucher greatly increases the likelihood that tenants will regularly pay the rent on time and in full, their credit histories prevent many voucher holders from ever getting their foot in the door in the first place.

It is this last factor that this bill is designed to address. As the author describes the impetus for the bill, “[f]eedback from social workers working with people experiencing homelessness indicated that they were not successfully finding people stable housing, even when they had vouchers, because of poor or no credit.” Upon further investigation, the author’s office found that “this is an issue across the state and the nation […].”

According to the author:

Housing continues to be one of the top issues that Californians face. Shelter is fundamental, and when it becomes unstable or undependable, receiving a housing voucher after waiting four to five years on a wait list can seem like a panacea. However, with a 60-day time limit, those with poor credit are unlikely to find housing – creating a cycle of instability that can keep families in at-risk situations. Currently, credit scores are used by property owners to determine if someone might be a good tenant. However, research shows that credit scores can be sensitive, imperfect algorithms that make mistakes. In fact, studies have shown that credit scores are often low because families have prioritized paying their rent over other bills. When families receive housing vouchers, risk of nonpayment is greatly diminished. Still, poor credit scores, which are meant to be a measure of financial risk, are one of the top reasons individuals with housing vouchers are denied housing over other applicants. This bill provides a more accurate tool to help evaluate if a tenant will be able to pay their portion of the rent and allows them to be judged more fairly on their current circumstances.

In support of the bill, the County Behavioral Health Directors Association of California writes:

[…] The rental market is difficult for all renters but especially for subsidized renters, a majority of whom are people of color. Today, the use of credit scores as an indicator of financial stability unnecessarily prevents many low-income people from obtaining stable housing. Clients of county behavioral health services often report experiencing housing discrimination related to mental health and substance use disorder issues. The use of credit scores adds yet another unnecessary barrier to housing stability, particularly when the government guarantees rent payments through vouchers. […]

In further support of the bill, Housing California writes:

[…] As housing subsidies make housing affordable, other financial concerns may not persist. Additionally, while some property managers help tenants build credit history by reporting their rental payment history to credit bureaus, credit reports typically do not include rental payments, and often show only negative history of rental payments. For these reasons, requiring landlords to accept alternative evidence in lieu of a credit report may provide a more meaningful picture of a prospective tenant’s ability to pay compared to a credit report. SB 267 would help mitigate a potential barrier to housing, and in turn remove a significant obstacle to efforts to end our affordable housing and homelessness crisis. […]

In opposition to the bill, the California Rental Housing Association and its affiliated associations write:

[…] SB 267 will make it increasingly more difficult for rental housing providers to properly evaluate applicants for rental housing and will undo the decades of hard work that have gone into providing affordable housing for millions of Californians that cannot afford to purchase a home. Rental housing providers take great pride in providing affordable housing and we pay special attention when we review potential residents. Our applications are designed to obtain useful background information that is compliant with Fair Housing laws and guidelines, such as those prescribed by DFEH. These criteria are equally applied to each application and are designed to ensure successful tenancies that help build stable communities.

Removing our ability to ask an applicant about their credit history diminishes our ability to properly evaluate applicants, which can create an “apples to oranges” comparison amongst applicants. Such comparisons will require our members to process dissimilar financial information being provided by applicants, which may then subject us to charges of discrimination and violations of fair housing laws. Furthermore, the existing credit bureaus have been established as trusted sources of financial information for many years with established processes to correct any inaccurate information. Additionally, they also have cutting edge software to ensure privacy and prevent hacking. To think any alternative could rise to their level of accuracy and safety is extremely naïve at best.

If credit history is restricted, we may scrutinize an applicant's job history more closely, and raise the income standards for accepting a prospect as a tenant. Or, we may require a phone call with previous employers, rejecting prospects whose former employers decline to disclose information about the prospect. And, we may even start requiring letters of recommendation from previous landlords or "transcripts" of proof of payment for the past five years or more.

The inevitable outcome of restricting credit history information about a prospective renter increases alternative required documentation to become an eligible renter.

[…]

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee the fiscal impact is as follows:

• CRD: The Civil Rights Department (CRD) reports costs of $ $126,000 in FY 2024-25, and $125,000 in FY 2025-26 and ongoing (General Fund).
  
• Judicial Branch: Unknown, potentially significant cost pressures to the courts in additional workload (Trial Court Trust Fund, General Fund).

SUPPORT: (Verified 5/19/23)

Arc and United Cerebral Palsy California Collaboration

California Coalition for Rural Housing

California-Hawaii State Conference of the NAACP

California Housing Partnership

California Labor Federation AFL-CIO

California School Employees Association

County Behavioral Health Directors Association

Housing California

Justice in Aging

National Association of Social Workers, California Chapter

People Concern

Western Center on Law & Poverty

OPPOSITION: (Verified 5/19/23)

Apartment Association of Greater Los Angeles

Apartment Association of Orange County

Berkeley Property Owners Association

Building Owners and Managers Association of California

California Apartment Association

California Association of Realtors

California Building Industry Association

California Business Properties Association

California Chamber of Commerce

California Rental Housing Association

Commercial Real Estate Development Association

East Bay Rental Housing Association

Institute of Real Estate Management

NAIOP of California

NorCal Rental Property Association

North Valley Property Owners Association

Santa Barbara Rental Property Association

Small Property Owners of San Francisco Institute

Southern California Rental Housing Association

Western Manufactured Housing Communities Association

Prepared by: Margie Estrada / JUD. / (916) 651-4113

5/23/23 12:00:14

**** END ****

1. Gubits et al, Family Options Study: Short-Term Impacts of Housing and Services Interventions for Homeless Families (July 2015) U.S. Department of Housing and Urban Development https://www.huduser.gov/portal/sites/default/files/pdf/FamilyOptionsStudy_final.pdf (as of Feb. 28, 2023). ↑

2. Rice, Major Study: Housing Vouchers Most Effective Tool to End Family Homelessness (July 14, 2015) Center on Budget and Policy Priorities https://www.cbpp.org/blog/major-study-housing-vouchers-most-effective-tool-to-end-family-homelessness (as of Feb. 28, 2023). ↑

3. Fischer, Research Shows Housing Vouchers Reduce Hardship and Provide Platform for Long-Term Gains Among Children (Oct. 7, 2015) Center on Budget and Policy Priorities https://www.cbpp.org/research/research-shows-housing-vouchers-reduce-hardship-and-provide-platform-for-long-term-gains (as of Feb. 28, 2023). ↑

4. California Civil Rights Department Finds Widespread Housing Discrimination Against Federal Housing Choice Vouchers (Oct. 17, 2022) California Civil Rights Department https://calcivilrights.ca.gov/wp-content/uploads/sites/32/2022/10/Fair-Housing-Testing-and-Housing-Choice-Voucher10.17.22PR.pdf (as of Feb. 28, 2023). ↑

5. CRD Files First Lawsuit to Enforce Protections for Housing Choice Voucher Holders (Jan. 4, 2023) California Civil Rights Department https://calcivilrights.ca.gov/wp-content/uploads/sites/32/2023/01/2023.01.04-SOI-CRD-Press-Release.pdf (as of Feb. 28, 2023). ↑

6. Wick, The Waiting List For Section 8 Vouchers In L.A. Is 11 Years Long (Apr. 4, 2017) LAist https://laist.com/news/section-8-waiting-list (as of Feb. 28, 2023). ↑

7. Galvez, “Getting Past ‘No’: Housing Choice Voucher Holders Experiences with Discrimination and Search Costs (May 2010) Poverty and Race Research Action Council http://www.prrac.org/pdf/GettingPastNo.pdf, pp. 10-15 (as of Feb. 28, 2023). Permission to cite on file with the Committee. ↑

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

SB 267 (Eggman) - Credit history of persons receiving government rent subsidies

Bill Summary:

SB 267 would prohibit a landlord, in instances involving a government rent subsidy, from using credit history as part of the rental housing application process unless the landlord offers the applicant the option to provide alternative evidence of financial responsibility and ability to pay.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 18, 2023

Fiscal Impact:

• CRD: The Civil Rights Department (CRD) reports costs of $ $126,000 in FY 2024-25, and $125,000 in FY 2025-26 and ongoing (General Fund).
  
• Judicial Branch: Unknown, potentially significant cost pressures to the courts in additional workload (Trial Court Trust Fund, General Fund).

Author Amendments:

Make technical and clarifying changes.

-- END --

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

SB 267 (Eggman) - Credit history of persons receiving government rent subsidies

Bill Summary:

SB 267 would prohibit a landlord, in instances involving a government rent subsidy, from using credit history as part of the rental housing application process unless the landlord offers the applicant the option to provide alternative evidence of financial responsibility and ability to pay.

Fiscal Impact:

• 
  
• CRD: The Civil Rights Department (CRD) reports costs of $ $126,000 in FY 2024-25, and $125,000 in FY 2025-26 and ongoing (General Fund).*
  
• Judicial Branch: Unknown, potentially significant cost pressures to the courts in additional workload (Trial Court Trust Fund, General Fund).*
  
  *See Staff Comments for additional detail.

Background:

California confronts a well-documented homelessness crisis driven in large measure by a severe shortage of affordable housing. Government subsidized housing – in which tenants typically pay 30 percent of their income and the government covers the rest -- represents a potential pathway to stable housing for some low-income Californians, but even low-income tenants fortunate enough to make it off the wait lists frequently encounter another insurmountable barrier: having bad credit or no credit history at all.

Subsidized housing vouchers show considerable promise as a tool for combatting homelessness, several factors are believed to limit their success. For one thing, many landlords refuse even to consider tenants if the tenants have vouchers. A second problem that limits the ability of housing vouchers to address homelessness is that demand for housing assistance vouchers far exceeds the supply. The waiting lists for housing choice vouchers in many cities are notoriously long. In 2017, for example, the Los Angeles’ Public Housing Authority estimated that it would take 11 years from the time an Angeleno signed up for a housing choice voucher until the person actually received a voucher. A third factor is the high cost of finding and applying for housing, both in terms of time and money.

The last major factor undermining the effectiveness of housing vouchers as a tool for combatting homelessness is that many landlords insist upon checking an applicant’s credit history, regardless of whether most of the tenant’s rent will be paid by government subsidy or not. For some of the same reasons that they qualify for the housing subsidy in the first place, low-income households also frequently have bad credit or simply no credit history at all. As a result, although having a housing subsidy voucher greatly increases the likelihood that tenants will regularly pay the rent on time and in full, their credit histories prevent many voucher holders from ever getting their foot in the door in the first place.

This bill would make it an unlawful housing practice for landlords to consider credit history when evaluating the rental application of a tenant when there is a government subsidy involved unless the landlord offers the applicant the option, at the applicant’s discretion, of providing alternative evidence of financial responsibility and ability to pay in lieu of the credit history.

Proposed Law:

1. Makes it unlawful, in instances where there is a government rent subsidy, for a housing provider to use a person’s credit history as part of the application process for a rental accommodation without offering the applicant the option, at the applicant’s discretion, of providing such alternative evidence of financial responsibility and ability to pay as the applicant may choose to submit. If the applicant elects to provide such alternative evidence of financial responsibility and ability to pay, the housing provider shall consider this alternative evidence in lieu of the person’s credit history when determining whether to offer the rental accommodation to the applicant.

Related Legislation:

• SB 1335 (Eggman, 2022) was nearly identical to this bill. SB 1335 died in the Assembly Housing and Community Development Committee.
  
• AB 2203 (Rivas, 2022) would have prohibited requiring a consumer credit report, as defined, as part of the application process for a rental housing accommodation in instances where there is a government rent subsidy. AB 2203 died on the Assembly Floor.
  
• AB 2527 (Quirk-Silva, 2022) would have prohibited landlords from using consumer credit reports or asking the tenant about the contents of a consumer credit report or the information contained therein during the rental application process. AB 2527 died in the Assembly Housing and Community Development Committee.

Staff Comments:

• CRD Staffing: Costs to CRD will be driven by the number of intakes and investigation that are generated by the passage of SB 267. CRD assumed an annual average of 100 intakes and 75 investigations of complaints that are unlikely to be particularly complex. Those numbers of intakes and investigations are based on, but smaller than, the number of intakes/investigations that CRD annually receives/conducts related to source-of-income discrimination in housing. CRD anticipates requiring 1.0 permanent for its Enforcement Division. Actual costs could be greater or lower depending on actual workload created by this bill.
• Judicial Branch: This bill expands CRD’s authority file civil actions. Although the actual number of complaints for violations of SB 267 cannot be known, CRD conservatively anticipates receiving 100 complaints annually. Estimated workload cost of one hour of court time is more than $1,000. If 100 cases are filed statewide that result in just 30 minutes of court time per filing, the costs of this bill would exceed the Suspense File threshold based solely upon costs pressures to the General Fund from additional court workload.
  
  Although courts are not funded on the basis of workload, increased pressure court staff time and resources may create a need for increased funding for courts from the General Fund (GF) to perform existing duties. Numerous trial court operations are funded through the imposition and collection of fines and fees. However, the Legislature has reduced and eliminated fines and fees over the past decade. As a result, the 2023-24 proposed budget anticipates an ongoing annual allocation of $109.3 million from the GF to the Trial Court Trust Fund (TCTF) in order to address the decline in revenue.

-- END --

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: SB 267 (Author:Eggman)

Version: January 31, 2023

Hearing Date: March 28, 2023

Fiscal: Yes

Urgency: No

Consultant: TSG

SUBJECT

Credit history of persons receiving government rent subsidies

DIGEST

This bill prohibits a landlord, in instances involving a government rent subsidy, from using credit history as part of the rental housing application process unless the landlord offers the applicant the option to provide alternative evidence of financial responsibility and ability to pay.

EXECUTIVE SUMMARY

California confronts a well-documented homelessness crisis driven in large measure by a severe shortage of affordable housing. Government subsidized housing – in which tenants typically pay 30 percent of their income and the government covers the rest -- represents a potential pathway to stable housing for some low-income Californians, but even low-income tenants fortunate enough to make it off the wait lists frequently encounter another insurmountable barrier: having bad credit or no credit history at all. Based on the idea that credit history is a poor indicator of a person’s ability to pay rent, especially when a government subsidy will be covering the majority of that payment, this bill would make it an unlawful housing practice for landlords to consider credit history when evaluating the rental application of a tenant when there is a government subsidy involved unless the landlord offers the applicant the option, at the applicant’s discretion, of providing alternative evidence of financial responsibility and ability to pay in lieu of the credit history.

The bill is author-sponsored. Support comes from organizations dedicated to reducing poverty and homelessness, who contend that preventing tenants with poor credit from accessing subsidized housing unnecessarily aggravates homelessness. Opposition comes landlord associations, developers, and real estate interests, who maintain that credit history is an important, efficient, and relevant tenant screening tool even in the context of subsidized housing. If the bill passes out of this Committee, it will next be heard by the Senate Appropriations Committee.

PROPOSED CHANGES TO THE LAW

1. Authorizes housing assistance payments, as part of the U.S. Housing Act of 1937, “[f]or the purpose of aiding low-income families in obtaining a decent place to live and of promoting economically mixed housing.” (42 U.S.C. § 1437f(a).)
2. Prohibits various specified forms of housing discrimination, as part of the California Fair Employment and Housing Act (FEHA), on the basis of protected categories including race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, veteran or military status, or genetic information, whether actual or perceived. (Gov. Code § 12955(a)-(e), (h), (i), (k), and (l).)
3. Limits a landlord’s use of financial or income standards to assess the eligibility of a prospective tenant to that portion of the rent that is to be paid by the tenant, in instances where a government subsidy is involved. (Gov. Code § 12955(o).)

This bill:

1. Makes it unlawful, in instances where there is a government rent subsidy, for a housing provider to use a person’s credit history as part of the application process for a rental accommodation without offering the applicant the option, at the applicant’s discretion, of providing such alternative evidence of financial responsibility and ability to pay as the applicant may choose to submit. If the applicant elects to provide such alternative evidence of financial responsibility and ability to pay, the housing provider shall consider this alternative evidence in lieu of the person’s credit history when determining whether to offer the rental accommodation to the applicant.
2. Makes other technical, non-substantive changes.

COMMENTS

1. Subsidized housing vouchers can be an effective tool for addressing homelessness

Evidence suggests that subsidized housing vouchers are among the most effective tools for addressing homelessness. A 2015 U.S. Department of Housing and Urban Development study concluded that, of several alternative methods for addressing family homelessness, subsidized housing vouchers are the most successful.^[1] The study tracked families for 18 months after the respective housing interventions. According to a synopsis of the study:

Compared to families in homeless shelters that received no extra help under the study, families given vouchers were:

• 56 percent less likely to experience another episode of homelessness;
• 55 percent less likely to report incidents of domestic violence; and
• 42 percent less likely to have their children placed in foster care or temporarily housed with other family members.

Families with vouchers also had 16 percent fewer absences from school or child care for their children.

The other forms of assistance tested, community-based rapid re-housing and project-based transitional housing, had few significant effects on homelessness and only scattered effects on other outcomes.^[2]

These conclusions are consistent with other research that has shown housing vouchers to be an effective way to address homelessness and its consequences.^[3]

2. Multiple factors currently limit the effectiveness of subsidized housing vouchers as a tool for combatting homelessness

Though subsidized housing vouchers show considerable promise as a tool for combatting homelessness, several factors currently conspire to limit their success.

For one thing, many landlords refuse even to consider tenants if the tenants have vouchers. This refusal was the target of SB 329 (Mitchell, Ch. 600, Stats. 2019), which expanded FEHA’s definition of “source-of-income” to prohibit such discrimination. Unfortunately, it appears that many landlords have simply ignored that law,^[4] though that may begin to change now that California’s Civil Rights Department has begun more proactive enforcement.^[5] A second problem that limits the ability of housing vouchers to address homelessness is that demand for housing assistance vouchers far exceeds the supply. The waiting lists for housing choice vouchers in many cities are notoriously long. In 2017, for example, the Los Angeles’ Public Housing Authority estimated that it would take 11 years from the time an Angeleno signed up for a housing choice voucher until the person actually received a voucher.^[6] A third factor is the high cost of finding and applying for housing, both in terms of time and money.^[7]

The last major factor undermining the effectiveness of housing vouchers as a tool for combatting homelessness is that many landlords insist upon checking an applicant’s credit history, regardless of whether most of the tenant’s rent will be paid by government subsidy or not. For some of the same reasons that they qualify for the housing subsidy in the first place, low-income households also frequently have bad credit or simply no credit history at all. As a result, although having a housing subsidy voucher greatly increases the likelihood that tenants will regularly pay the rent on time and in full, their credit histories prevent many voucher holders from ever getting their foot in the door in the first place.

It is this last factor that this bill is designed to address. As the author describes the impetus for the bill, “[f]eedback from social workers working with people experiencing homelessness indicated that they were not successfully finding people stable housing, even when they had vouchers, because of poor or no credit.” Upon further investigation, the author’s office found that “this is an issue across the state and the nation […].”

3. The solution proposed by this bill

The author’s intent is to ensure that tenants who have a government rent subsidy are not prevented from accessing rental housing based on their credit history alone. To minimize the burden on landlords, while still giving tenants with a rent subsidy the opportunity to be evaluated in light of more than just their credit history, the bill allows landlords to request credit history from any applicant, but requires the landlord to accept alternative evidence of the applicant’s financial responsibility and ability to pay if an applicant with a government subsidy elects to provide such evidence in lieu of credit history.

Under this approach, the tenant with the housing subsidy is empowered to choose whether to submit alternative evidence of financial responsibility and ability to pay to the landlord. The tenant with the housing subsidy also gets to decide what alternative evidence to present, eliminating concerns that the process could lead to a fishing expedition through the applicant’s financial records. The landlord’s obligation would be to accept this evidence in lieu of credit history. In other words, so long as the applicant offers some alternative evidence of financial responsibility and ability to pay, the landlord could not reject that applicant for failure to provide a credit history. How the landlord chooses to evaluate this alternative evidence and what weight the landlord chooses to give that evidence would remain in the landlord’s discretion, however. The idea is to give tenants with a housing subsidy the opportunity to have their applications to rent evaluated on the basis of something other than credit history.

4. Is credit history a meaningful indicator of rent payment reliability?

It is largely undisputed that the use of credit history as a tool for screening tenants acts as a barrier to obtaining rental housing for people who have bad credit or no credit history at all. That is the point, after all. At a time when there is a drastic shortage of affordable rental housing available, however, making it more difficult for people with bad or no credit to obtain stable housing only further marginalizes them financially.

Given this dynamic, two key policy questions presented by this bill are: do the benefits of allowing landlords to screen tenants based on credit history outweigh its costs? If so, does that conclusion still hold true in situations where much of the tenant’s rent payment will be subsidized by the government?

The author of this bill contends that, for several reasons, credit history is not indicative of the likelihood that people will pay their rent and there is some research that supports this view.

As an initial matter, credit history is exactly what it says it is: history. It is an indication of the tenant’s ability to pay in the past, which may or may not hold true in the present. Other, more current financial documentation – current paycheck stubs or bank balances, for instance – may provide a better picture of current ability to pay. The relevance of former ability to pay to current ability to pay is especially tenuous if the tenant has just obtained a government housing subsidy, since that is likely to dramatically and sustainably improve the tenant’s financial situation.

Next, the author points out that credit history information, as reflected in credit scores and the credit reports available commercially from entities like Experian, Equifax, and TransUnion, can sometimes be erroneous.^[8] Identify theft, misidentification of a debtor, or typographical mistakes can cause a person’s credit report and score to reflect inaccurately on the person’s actual history of payment. There is a statutorily-mandated system through which consumers can challenge erroneous information in their credit reports (Civ. Code § 1789.15), but to make such a challenge, the consumer has to know about the error in the first place and work through the necessary bureaucratic process to get it fixed. For people already confronting housing instability, this may be a lot to expect.

Finally, there is anecdotal evidence that, in some cases at least, bad consumer credit history may actually indicate that the person prioritizes paying the rent. Unlike most other consumer financial transactions, rent payments are not usually reported as part of people’s credit history. So, while complete and on time payments of other bills will boost a person’s credit score, reliably paying the rent typically does not. In households where “the rent eats first,” as the saying goes, tenants may deliberately choose not to pay other bills in order to ensure the rent gets paid. In such cases, the resulting bad credit history is a direct result of a deliberate choice to pay the rent first.^[9]

5. Arguments in support of the bill

According to the author:

Housing continues to be one of the top issues that Californians face. Shelter is fundamental, and when it becomes unstable or undependable, receiving a housing voucher after waiting four to five years on a wait list can seem like a panacea. However, with a 60-day time limit, those with poor credit are unlikely to find housing – creating a cycle of instability that can keep families in at-risk situations. Currently, credit scores are used by property owners to determine if someone might be a good tenant. However, research shows that credit scores can be sensitive, imperfect algorithms that make mistakes. In fact, studies have shown that credit scores are often low because families have prioritized paying their rent over other bills. When families receive housing vouchers, risk of nonpayment is greatly diminished. Still, poor credit scores, which are meant to be a measure of financial risk, are one of the top reasons individuals with housing vouchers are denied housing over other applicants. This bill provides a more accurate tool to help evaluate if a tenant will be able to pay their portion of the rent and allows them to be judged more fairly on their current circumstances.

In support of the bill, the County Behavioral Health Directors Association of California writes:

[…] The rental market is difficult for all renters but especially for subsidized renters, a majority of whom are people of color. Today, the use of credit scores as an indicator of financial stability unnecessarily prevents many low-income people from obtaining stable housing. Clients of county behavioral health services often report experiencing housing discrimination related to mental health and substance use disorder issues. The use of credit scores adds yet another unnecessary barrier to housing stability, particularly when the government guarantees rent payments through vouchers. […]

In further support of the bill, Housing California writes:

[…] As housing subsidies make housing affordable, other financial concerns may not persist. Additionally, while some property managers help tenants build credit history by reporting their rental payment history to credit bureaus, credit reports typically do not include rental payments, and often show only negative history of rental payments. For these reasons, requiring landlords to accept alternative evidence in lieu of a credit report may provide a more meaningful picture of a prospective tenant’s ability to pay compared to a credit report. SB 267 would help mitigate a potential barrier to housing, and in turn remove a significant obstacle to

efforts to end our affordable housing and homelessness crisis. […]

6. Arguments in opposition to the bill

In opposition to the bill, a coalition of eight organizations led by the California Apartment Association writes:

[…] SB 267 allows a tenant/applicant to produce undefined “alternative evidence” to demonstrate their ability to pay. It sets up a legal trap for rental property owners who will certainly face claims that the alternative evidence was credible and that the property owner should have relied on this alternative evidence as proof of the tenant’s ability to meet their obligations under the lease even if the rental property owner has no way to verify the information. One of the only objective ways to understand tenant/applicants’ ability to pay their portion of the rent and to understand their past actions at rental property is for the rental property owner to utilize a credit report and an eviction report. […]

In most all government programs, the government does not pay all the tenant’s rent or other tenant bills and household expenses. Some government programs provide a limited amount of funding to cover a month or two of rent. If the tenant has to pay any portion of the rent as well as utilities and other household bills, the rental property owner must have some objective way of evaluating the tenant’s ability and willingness to pay their financial obligations, including their portion of the rent. By removing the existing objective criteria, SB 267 will make the application process much more challenging for tenant/applicants who receive a government subsidy. Without a way to verify the accuracy of financial information, the landlord has no way to know what risk exists for taking on the applicant. […]

SUPPORT

The Arc and United Cerebral Palsy California Collaboration

California Coalition for Rural Housing

California-Hawaii State Conference of the NAACP

County Behavioral Health Directors Association

Housing California

Justice in Aging

National Association of Social Workers, California Chapter

Western Center on Law & Poverty

OPPOSITION

Apartment Association of Greater Los Angeles

Apartment Association of Orange County

Berkeley Property Owners Association

Building Owners and Managers Association of California

California Apartment Association

California Association of Realtors

California Building Industry Association

California Business Properties Association

California Chamber of Commerce

California Rental Housing Association

Commercial Real Estate Development Association

East Bay Rental Housing Association

Institute of Real Estate Management

NAIOP of California

NorCal Rental Property Association

North Valley Property Owners Association

Santa Barbara Rental Property Association

Small Property Owners of San Francisco Institute

Southern California Rental Housing Association

Western Manufactured Housing Communities Association

RELATED LEGISLATION

Pending Legislation: AB 1097 (L. Rivas, 2023) was identical to this bill but was gutted and amended recently to address other matters.

Prior Legislation:

SB 1335 (Eggman, 2022) was identical to this bill. SB 1335 died in the Assembly Housing and Community Development Committee.

AB 2203 (Rivas, 2022) would have prohibited requiring a consumer credit report, as defined, as part of the application process for a rental housing accommodation in instances where there is a government rent subsidy. AB 2203 died on the Assembly Floor.

AB 2527 (Quirk-Silva, 2022) would have prohibited landlords from using consumer credit reports or asking the tenant about the contents of a consumer credit report or the information contained therein during the rental application process. AB 2527 died in the Assembly Housing and Community Development Committee.

SB 222 (Hill, Ch. 601, Stats 2019) defined a Veterans Affairs Supportive Housing (VASH) voucher as a source of income for purposes of FEHA, thereby prohibiting landlords from discriminating against a tenant on the basis that the tenant pays part or all of the rent using a VASH voucher.

SB 329 (Mitchell, Ch. 600, Stats. 2019) expanded the definition of “source of income,” a category that California’s Fair Employment and Housing Act (FEHA) protects against discrimination, thus prohibiting landlords from discriminating against tenants who rely upon housing assistance paid directly to landlords, such as a Section 8 voucher, to help them pay the rent.

SB 1098 (Burton, Ch. 590, Stats. 1999) prohibited discrimination under FEHA on the basis of the failure to exclude a government rent subsidy from that portion of the rent to be paid by the tenant in assessing the tenant’s eligibility for rental housing.

**************

1. Gubits et al, Family Options Study: Short-Term Impacts of Housing and Services Interventions for Homeless Families (July 2015) U.S. Department of Housing and Urban Development https://www.huduser.gov/portal/sites/default/files/pdf/FamilyOptionsStudy_final.pdf (as of Feb. 28, 2023) at p. XXX. ↑

2. Rice, Major Study: Housing Vouchers Most Effective Tool to End Family Homelessness (July 14, 2015) Center on Budget and Policy Priorities https://www.cbpp.org/blog/major-study-housing-vouchers-most-effective-tool-to-end-family-homelessness (as of Feb. 28, 2023). ↑

3. Fischer, Research Shows Housing Vouchers Reduce Hardship and Provide Platform for Long-Term Gains Among Children (Oct. 7, 2015) Center on Budget and Policy Priorities https://www.cbpp.org/research/research-shows-housing-vouchers-reduce-hardship-and-provide-platform-for-long-term-gains (as of Feb. 28, 2023). ↑

4. California Civil Rights Department Finds Widespread Housing Discrimination Against Federal Housing Choice Vouchers (Oct. 17, 2022) California Civil Rights Department https://calcivilrights.ca.gov/wp-content/uploads/sites/32/2022/10/Fair-Housing-Testing-and-Housing-Choice-Voucher10.17.22PR.pdf (as of Feb. 28, 2023). ↑

5. CRD Files First Lawsuit to Enforce Protections for Housing Choice Voucher Holders (Jan. 4, 2023) California Civil Rights Department https://calcivilrights.ca.gov/wp-content/uploads/sites/32/2023/01/2023.01.04-SOI-CRD-Press-Release.pdf (as of Feb. 28, 2023). ↑

6. Wick, The Waiting List For Section 8 Vouchers In L.A. Is 11 Years Long (Apr. 4, 2017) LAist https://laist.com/news/section-8-waiting-list (as of Feb. 28, 2023). ↑

7. Galvez, “Getting Past ‘No’: Housing Choice Voucher Holders Experiences with Discrimination and Search Costs (May 2010) Poverty and Race Research Action Council http://www.prrac.org/pdf/GettingPastNo.pdf, pp. 10-15 (as of Feb. 28, 2023). Permission to cite on file with the Committee. ↑

8. See, eg., Gill. More Than a Third of Volunteers in a Consumer Reports Study Found Errors in Their Credit Reports (Jun. 11, 2021) Consumer Reports https://www.consumerreports.org/credit-scores-reports/consumers-found-errors-in-their-credit-reports-a6996937910/ (as of Mar. 21, 2023). ↑

9. Galvez, “Getting Past ‘No’: Housing Choice Voucher Holders Experiences with Discrimination and Search Costs (May 2010) Poverty and Race Research Action Council http://www.prrac.org/pdf/GettingPastNo.pdf, p. 2 (as of Mar. 21, 2023). Permission to cite on file with the Committee. ↑