High housing costs play out in a number of ways. High home prices force more consumers into renting, which in turn drives up the price of rental apartments and houses.
This leaves many financially strapped consumers struggling to pay the rent each month, creating an opportunity for landlords looking for new revenue streams — high-cost loans that add expense and risk to the rental equation.
Sometimes called rent-splitting loans, they’re really just loans piled on top of rent. They may help consumers keep a roof over their head but driving them further into debt while doing so.
“The bottom line is that rent-splitting loans come at a cost — people who turn to these products pay a premium to get all of their rent paid at one time,” said Ariel Nelson, senior attorney at the National Consumer Law Center. “Many rent-splitting companies charge steep fees.”
It’s up to states to address the problem, according to a new issue brief from NCLC.
What States Can Do to Protect Tenants from Rent-Splitting Loans, identifies measures states should take to address housing unaffordability and strengthen tenant protections to ensure tenants do not have to resort to high-cost credit products.
States should also strengthen existing laws governing these rent-splitting loans, the study found.
Similar to payday loans
Rent-splitting companies include Flex, Esusu, Split Pay, Qira, and Livble; the fees they charge can include membership or subscription fees, late fees, processing fees, “split” fees, and origination fees. And when tenants provide direct bank account access, the loan products could result in bank overdraft and insufficient funds fees.
Some companies lure tenants by burying cost information or structuring their products so they appear inexpensive. Others claim 0% interest but charge high fees.
“Like payday loans and other short-term loans, rent-splitting loans can lead to cycles of debt, reborrowing, and multiplying fees that are hard to escape,” said Lauren Saunders, senior attorney at the NCLC.
Tenants turning to rent-splitting loans also risk technical and customer service failures, such as a company failing to pay rent and subjecting the tenant to threats of eviction. They may also come with subscriptions bundled with other products that can drive up costs.
Contractual traps, such as arbitration clauses and class action waivers, that limit customers’ ability to hold companies accountable and obtain relief are also common.
What states should do
To address housing unaffordability and strengthen tenant protections to ensure tenants do not have to resort to high-cost credit products to pay rent on time, states must cap and regulate landlord-imposed late fees and other rental housing junk fees.
NCLC said states should also take additional action, including requiring landlords to:
Accept rent in two installments without cost to the tenant;
Change the rent due date for free upon request;
Allow tenants to pay one month’s rent from multiple payment sources;
Offer at least one free and accessible payment method, and cap any “pay-to-pay” or convenience fees.
And the non-profit NCLC said states should take steps to strengthen existing laws governing rent-splitting loans and enforce those laws, including:
Banning subscription fees for rent-splitting loans;
Treating rent-splitting loans as closed-end credit and require inclusion of all fees (including subscription fees if not banned) in the interest rate/APR cap. This cap should be 36% or less, calculated based on each extension of credit;
Bringing enforcement actions, issuing guidance, or closing loopholes to ensure that small-loan laws, including rate caps and license requirements, apply.
Limiting late fees to a total of $8 per month (as the Consumer Financial Protection Bureau attempted to do for credit cards).