The Credit Report Catch-22

Fees for reporting rental payment statuses to credit bureaus, such as the benefit package fee charged by Deca Property Management, are particularly pernicious because the actions of credit bureaus can make it harder to rent anywhere else.

By including rental payments in credit reports, landlords make it much harder for tenants to get back on their feet if they have trouble paying rent on time or get evicted. That’s because landlords typically check credit reports before allowing a tenant to move into an apartment. And because the United States is in the midst of an affordable housing shortage, landlords can afford to turn away tenants who have evictions or late fees on their credit report.

These credit reporting fees are becoming easier than ever to charge tenants, thanks to the help of tech startups.

Deca’s resident benefit package program is run by a tech startup called Second Nature, according to a flier advertising the benefit package. Along with a competing startup called CredHub, Second Nature says it can administer a benefits package at no cost to the landlord. These benefit packages include services that ostensibly could be helpful, such as identity theft protection or “concierge” services that help tenants set up their utilities when they move into a new apartment.

But both companies’ benefit packages also include a service that reports rent payments to credit agencies. Deca describes this as “credit building” in its flier and says that by reporting rental payments, tenants could see “average increases of 23 to 42 points” in their credit scores.

An analysis of several court cases where Deca filed to evict their tenants suggests these reports don’t always benefit renters. Even when tenants are late on their payments, Deca continues to charge the fees for their “resident benefit package,” according to copies of “rental ledgers” filed as part of Deca eviction cases reviewed by the Lever. Presumably, Deca continues to report tenants’ payment histories to the credit bureaus.

Deca’s resident benefit package fee is mandatory, and that appears to be by design. While Second Nature, the company that Deca uses to administer the benefit package, merely recommends that landlords make their benefit package a mandatory fee, CredHub says its credit reporting feature is mandatory.

“Allowing residents to opt out defeats much of the purpose of credit reporting, especially with regards to reducing delinquency,” CredHub’s website reads. “Naturally, the residents that opt out are the ones who are least likely to pay on time.”

“It’s really concerning that this is mandatory,” said Nelson about the benefit package. “Some of these things could be . . . things that people don’t want.”

Risky Fees

Landlords are able to make money off tenants even when they refuse to rent to them. One of the most common types of fees — application fees — are charged to tenants before they even move into an apartment. According to the Council of Economic Advisers, landlords collected an estimated $276 million in application fees from tenants in 2023. These application fees can range from $25 to $350 per tenant.

Application fees add up when tenants apply to multiple apartments. Some states have taken action to limit application fees: application fees are prohibited in Massachusetts, and a new law in Rhode Island allows tenants to supply their own credit and background reports in lieu of paying an application fee. But many states don’t regulate application fees at all. Even when states do regulate the fees, landlords often ignore the laws with little to no consequences.

In practice, landlords can charge an application fee even if they don’t intend to rent to the person applying for the apartment. Landlords don’t always disclose rental prerequisites to applicants, such as not having a criminal background or having a certain credit score, according to a report from the National Consumer Law Center.

Even when landlords are willing to rent to tenants with less desirable credit scores or criminal records, they are able to collect additional fees. Some landlords, such as AMOSO Realty, a property management company in Missouri, charge a “risk mitigation” fee for tenants with low credit scores, according to documents filed as part of an eviction proceeding. (AMOSO Realty also charges its tenants a mandatory resident benefit package fee that costs $75 a month, which includes credit reporting for rental payments.)

In a copy of an AMOSO lease filed as part of an eviction case, the risk mitigation fee was justified as a way to compensate the landlord for the increased “risk” of renting to someone with a low credit score.

“Broker’s experience has shown that tenants with credit scores below the optimal amount are more likely to pay late or otherwise default on their lease obligations, creating a higher workload and more risk for Broker,” read the lease. “Therefore, Tenant does have to pay a monthly Risk Mitigation Admin Fee in the amount of $50.00 due on the same date as the monthly rent.”

Fees, Fees, and More Fees

For many landlords, fees are an opportunity to transfer the costs of owning and maintaining an apartment building from themselves to their tenants. Some of the more common types of fees seen in the Lever’s analysis of eviction-related court records include monthly fees for basic services to keep a building habitable, like fees for pest control or trash removal.

In Colorado, for example, a tenant named Nichole Collins sued her landlord, Greystar, for charging mandatory monthly fees for services such as trash removal that Greystar is required to provide under Colorado law. Greystar is the largest apartment management company in the United States, the lawsuit said, and its fees are not disclosed as part of the monthly rent that the company quotes prospective tenants.

Then there are the fees landlords charge tenants after they are evicted or move out. Molly Gordon, a Louisiana attorney at Southeast Louisiana Legal Services who represents tenants in eviction and other lawsuits, said such fees assessed to her clients are often excessive.

“We see a wide range of bogus fees assessed to tenants after move-out, ranging from a $5 ‘photo documentation fee,’ to hundreds of dollars for ‘trash removal,’ to thousands of dollars of ‘lease breakage’ fees after a family was evicted,” Gordon explained. “Tenants are regularly charged for normal wear and tear or problems that were caused by the landlord’s own deferred maintenance.”

According to the Lever’s analysis of court records, in some cases, fees assessed to tenants don’t appear to correspond with the actual cost of cleaning or repairing an apartment.

For example, according to a lease agreement filed in an eviction case, SFR Investments, a landlord that owns property in Florida, says that it will charge a “minimum” of $85, plus $75 an hour in labor costs, to repair a clogged toilet. A different landlord named AGPM charged a tenant in Tallahassee $100 because “Two bags of garbage [were] removed from [the] front-door,” according to a copy of that resident’s rental ledger.

If these fees are not paid, landlords can send the fees to collections, meaning the unpaid balance will show up on a tenant’s credit score, which can cause future landlords to reject the tenant’s housing application.

“You could end up with the debt-collection item on your credit report for seven years,” explained Nelson at the National Consumer Law Center. “When you have all these issues with credit reports, it means that getting housing in the future can be really difficult because a lot of landlords will automatically deny housing to someone who has rental debt.”

“One of the hardest barriers to overcome when renters are searching for new housing is an unpaid balance to a prior landlord,” said Gordon. “When a landlord reviews an applicant’s rental history and it looks like they owe another landlord money, that almost always leads to a rejection.”

Rental debt is a significant part of the debt collection industry. According to one industry survey of 113 debt collection agencies, 33 percent of those agencies collected rental debt in 2022. According to the Consumer Finance Protection Bureau complaint database, in 2023 consumers filed approximately a thousand complaints related to rental debt collection. Some collection agencies, such as IQ Data International and Fabco Group, focus exclusively on rental debt.

Washington-based IQ Data International, in particular, has been the subject of multiple lawsuits alleging that the company attempted to collect rental debt related to nonexistent damages. In one November 2023 lawsuit, a tenant sued IQ Data as well as his former landlord, alleging that after moving out and being “advised that there was nothing wrong with the apartment,” he received a bill for $4,500 for charges that included “carpet replacement” and “paint.”

A different 2022 lawsuit alleged that after a tenant used a provision of Florida law to break her apartment lease because the landlord would not address “pervasive mold damage,” IQ Data attempted to collect $2,465.80 from the tenant.

An “Incendiary Term”

The Biden administration has taken several limited steps to address tenant junk fees. In July 2023, the administration announced that it had secured commitments from three apartment search websites to add features that would provide more transparency about the fees that landlords charge. The administration also published what are essentially several strongly worded letters encouraging landlords to rein in junk fees, including an open letter from Housing and Urban Development secretary Marcia Fudge and a proposed “blueprint for a renters bill of rights” that the administration describes as nonbinding.

Most consequentially, in October 2023, the FTC proposed a rule that would require businesses across a wide range of industries to disclose any junk fees they charge to consumers and require that all fees be included in the total price of a product or service.

Landlord industry groups have fought back. In a series of comments about the proposed rule, trade groups like the National Multifamily Housing Council and the National Apartment Association asked that landlords be exempted from the new rule. These organizations claimed that the property managers they represent “work tirelessly to provide consumers with housing that is affordable” and that “the rental housing industry is not generally plagued with many of the consumer protection and deceptive and unfair trade practices that are prevalent” in other industries regarding unexpected fees.

The two trade groups also claimed that the FTC’s proposed rule would be “duplicative” because states also regulate rental housing. Both trade groups spent a combined $11 million in 2023 lobbying Congress and various federal agencies including the FTC, according to their lobbying disclosures.

A spokesperson for the National Apartment Association told the Lever that “Layering additional regulations will . . . harm the affordability and availability of rental housing.”

A spokesperson for the National Multifamily Housing Council told the Lever that “Fees for service in rental housing are sometimes misunderstood” and that “generally, fees in rental housing are not comparable to fees in other industries.”

The New Jersey Apartment Association repeated the National Association of Residential Property Managers’ claim that landlords don’t charge junk fees, noting that the FTC “lacks any statistical basis for its claim that ‘junk fees’ are a problem in the residential rental sector.” Nicholas Kikis, a spokesperson for the association told the Lever that he believed that “the term ‘Junk Fees’ is an incendiary term” and that when landlords charge fees, it “improve[s] affordability.”

“Selecting an apartment is a big decision for most renters, and I believe that most give their choice in housing enough consideration to not be surprised by the fees that they will ultimately be charged,” Kikis added.

Nelson of the National Consumer Law Center said regulators should go beyond the proposed rule to crack down on rental junk fees. She added that excessive fees make up a significant portion of tenants’ rent payments, and that a combination of new laws and aggressive enforcement is needed to rein in such costs.

“At both the federal level and the state level there should be enforcement actions,” Nelson said. “In addition to private enforcement, we also need government actors to be investigating and bringing actions against big violators.”