Louis v. Saferent Sols., LLC

685 F.Supp.3d 19

Mary LOUIS and Monica Douglas, on behalf of themselves and similarly situated persons,and Community Action Agency of Somerville, Inc., Plaintiffs, v. SAFERENT SOLUTIONS, LLC, andMetropolitan Management Group, LLC, Defendants.

Civil Action No. 22-CV-10800-AK

United States District Court, D. Massachusetts

Signed July 26, 2023

Christine E. Webber, Pro Hac Vice, Brian C. Corman, Cohen Milstein Sellers & Toll PLLC District of Columbia, Washington, DC, Samantha N. Gerleman, Pro Hac Vice, AARP Foundation Litigation, Washington, DC, Todd S. Kaplan, Greater Boston Legal Services, Boston, MA, Stuart T. Rossman, National Consumer Law Center, Boston, MA, for Plaintiffs.

Andrew Soukup, Pro Hac Vice, Robert Allen Long, Jr., Jessica Merry Samuels, Pro Hac Vice, Jeffrey Huberman, Covington & Burling LLP, Washington, DC, for Defendant Saferent Solutions, LLC.

Thomas H. Wintner, Mathilda McGee-Tubb, Michael A. Pollack, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC, Boston, MA, for Metropolitan Management Group, LLC.

Ryan P. Dumais, Eaton Peabody, Augusta, ME, for Amicus The Consumer Data Industry Association.

MEMORANDUM AND ORDER ON DEFENDANTS' MOTIONS TO DISMISS

A. KELLEY, United States District Judge

Plaintiffs Mary Louis ("Louis"), Monica Douglas ("Douglas"), and Community Action Agency of Somerville, Inc. ("CAAS"), bring this putative class action against Defendants SafeRent Solutions, LLC ("SafeRent"), and Metropolitan Management Group, LLC ("Metropolitan"), on behalf of low-income and minority individuals who hold housing vouchers and were denied rental units. [Dkt. 15 at 1]. Plaintiffs allege that a tenant-screening service operated by SafeRent and Metropolitan's use thereof violate the Fair Housing Act, 42 U.S.C. § 3604, and Massachusetts antidiscrimination and consumer protection laws. [Id. at ¶ 1]. Metropolitan and SafeRent have filed motions to dismiss for lack of standing and for failure to state a claim pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). [Dkt. 29; Dkt. 31]. Plaintiffs oppose these motions. [Dkt. 36]. For the following reasons, Metropolitan's motion to dismiss [Dkt. 29] is DENIED and SafeRent's motion to dismiss [Dkt. 31] is GRANTED IN PART and DENIED IN PART.

I. BACKGROUND

The Court recites here only those facts and law necessary to understand what has led to this action. Further details relevant to the Court's analysis will be discussed as needed. Unless otherwise noted, the facts are presented as alleged in the amended complaint. [See Dkt. 15 ("Am. Compl.")]. Louis and Douglas are Black¹ women who hold housing vouchers² and whose rental applications were denied, at least in part, because of their credit histories and scores. [Id. at ¶¶ 7, 74-76, 84-85]. Metropolitan denied Louis' application for an apartment, and another housing provider not named as a defendant in this action initially rejected Douglas' application for an apartment, though it later approved her request through its appeal process. [Id. at ¶¶ 74-75, 83-89]. Metropolitan and the housing provider that denied Douglas' application relied on SafeRent's tenant-screening services when denying these applications. [Id. at ¶¶ 20, 76, 85]. CAAS provides a variety of services to low-income, prospective renters, including those who have received housing vouchers. [Id. at ¶ 17]. Plaintiffs claim that the Defendants' use of SafeRent's tenant-screening services, in particular, the "SafeRent Score," which relies on "credit histories and other information which bears little to no relationship to the risk that their rent will be paid," disproportionally affects Black and Hispanic applicants and voucher holders in violation of federal and state antidiscrimination and consumer protection laws. [Id. at 1, ¶ 1].

A. The SafeRent Score

SafeRent³ designs, markets, and sells a variety of tenant-screening services to landlords, real estate agents, brokerages, and property managers nationwide and in Massachusetts. [Id. at ¶¶ 21-22]. These "self-service tenant screening solutions," as advertised by SafeRent, are intended to help "identify top quality applicants." [Id. at ¶ 22]. One of these services is the "SafeRent Score," which uses an algorithm to calculate the risk of leasing a property to a particular tenant. [See id. at ¶¶ 24-25]. The SafeRent Score aggregates several factors, including credit history, bankruptcy records, past due accounts, payment performance, and eviction history, according "to their statistical significance in predicting lease performance," and calculates a numerical rating between two hundred and eight hundred for rental applicants. [Id. at ¶¶ 25, 27, 30, 35]. This score is intended to measure the applicant's "lease performance risk," and applicants with higher scores generally outperform applicants with lower scores. [Id. at ¶ 28]. The SafeRent Score does not consider the financial benefits of housing vouchers. [Id. at ¶¶ 31].

SafeRent then issues an "accept/decline/conditional decision" to housing providers based on the applicant's SafeRent Score and the specific housing provider's "predetermined decision points." [Id. at ¶ 26]. Housing providers select a minimum SafeRent Score required for approval of a rental application, and they can also establish a range to "accept with conditions." [Id. at ¶ 39]. SafeRent does not disclose the weight assigned to any of the factors considered in the SafeRent Score, nor does it provide the specific sources of its data. [Id. at ¶¶ 34-35]. Housing providers cannot change SafeRent's algorithm. [Id. at ¶ 33]. As such, housing providers select the minimum approval score without knowing how scores are calculated. [Id. at ¶ 39].

B. Reliance on Credit History and Score

According to Plaintiffs, "the SafeRent Score assigned to an applicant dictates their rental eligibility" and "is calculated based in large part on factors that produce disproportionately lower SafeRent Scores for Black and Hispanic applicants, and those using housing vouchers." [Id. at ¶ 41]. They allege that the SafeRent Score is based "in significant part on the applicant's credit score and credit history, including non-tenancy debts," which are not intended to gauge whether an individual will be a "good tenant." [Id. at ¶¶ 45-46]. In particular, these credit reviews fail to account accurately for an applicant's ability to pay rent, because they do not consider income and assets in their calculations. [Id. at ¶¶ 47-48].

Individuals receive a housing voucher only if they qualify as "extremely low-income," "very low-income," or "low-income." [Id. at ¶ 58]. Individuals with lower incomes often have lower credit scores than those with higher incomes. [Id. at ¶ 59]. Housing providers who rent to tenants with housing vouchers are guaranteed to receive at least some of their tenants' monthly rental payments, because the local housing authority disburses payment directly to the housing provider. [Id. at ¶ 65]. Moreover, voucher holders may also request exemptions from the minimum rent they are required to pay if they experience certain hardships, such as loss of assistance programs, the threat of eviction, decreased income, loss of employment, or a death. [Id. at ¶ 67]. This further insulates housing providers from the risk of non-payment for units rented to voucher holders. [Id.]. As such, credit scores and histories fail to predict whether a rental applicant would make a quality tenant, particularly when housing vouchers are involved. [See id. at ¶ 61].

Reliance on conventional credit history disproportionately affects Black and Hispanic tenants, in addition to tenants who hold housing vouchers, because Black and Hispanic consumers have a lower median credit score than White consumers. [Id. at ¶¶ 50-51]. As of October 2021, Black consumers had a median credit score of 612 and Hispanic consumers had a median credit score of 661, while White consumers had a median credit score of 725. [Id. at ¶ 51]. Moreover, as of that date, 45.1% of Black consumers and 31.5% of Hispanic consumers had subprime credit scores, while only 18.3% of White consumers had subprime credit scores, which leads to less favorable credit terms. [Id. at ¶ 52]. These "[r]acial disparities in credit health reflect historical inequities that reduced wealth and limited economic choices for communities of color." [Id. at ¶ 54]. For example, as of 2017, Black families owned less than seven cents for every dollar in wealth owned by White families, and Latino families owned less than eight cents of every dollar of wealth owned by White families. [Id.]. The past credit data factored into credit scoring models is "systemically and historically biased against non-white consumers." [Id. at ¶ 53]. These racial disparities in credit health further "perpetuate wealth inequalities through reduced financial opportunities and fewer financial safety nets." [Id. at ¶ 55 (emphasis omitted)].

C. Plaintiffs' Experiences

Louis is a 54-year-old Black woman who has a housing voucher that pays for approximately 69% of her rent. [Id. at ¶ 13]. Her rental application at Granada Highlands, which was managed by Metropolitan, was denied because of her SafeRent Score, which included non-tenancy related debt in its calculations. [Id. at ¶¶ 14, 20]. Metropolitan's rejection letter informed Louis that "the third-party service [Metropolitan] utilize[s] to screen all prospective tenants has denied [her] tenancy," and "the service's SafeRent tenancy score was lower than is permissible under [Metropolitan's] tenancy standards." [Id. at ¶ 76]. Although Louis attempted to appeal Metropolitan's decision, offering landlord and employment references, Metropolitan told Louis that it "do[es] not accept appeals and cannot override the outcome of the Tenant Screening." [Id. at ¶ 78]. Louis then had to move into an apartment which cost more, had fewer amenities, and was located in a less desirable area with a high crime rate. [Id. at ¶¶ 79-80].

Douglas is a 65-year-old Black woman who...