“PropTech” is compounding the unaffordability and precarity of securing and maintaining rental housing. The proliferation of property technology has become another way to extract profits from tenants desperate for a roof over their heads. This report focuses on one of these predatory products: security deposit “alternative” products, which millions of renters across the United States now use.
Security deposit alternative companies claim to offer a solution to unaffordable upfront costs, which Fannie Mae identifies as one of renters’ top two “pain points.” These upfront costs can include a security deposit, first- and last-months’ rent, rental application fees, other move-in fees, and moving expenses. Companies advertise security deposit alternative products as benefitting tenants by allowing them to move in without making a large, upfront payment while still providing financial protection to the landlord.
Landlords may encourage or even require tenants to use these products in an attempt to avoid state laws that tightly regulate security deposits. These products may also be appealing to renters desperate to secure otherwise unobtainable housing. However, security deposit alternative products present significant consumer protection concerns. Key issues for tenants include:
- Nonrefundable fees;
- Landlords that require their use;
- Misleading marketing;
- Failure to protect tenants;
- Higher costs;
- Overdrawn bank accounts;
- No proof of claims or dispute resolution;
- Communication problems;
- Differential pricing;
- Price increases;
- Paying for a deposit and the alternative; and
- Bundling with unwanted products.
This report analyzes security deposit alternative products, explaining how they work and how they differ from traditional security deposits. It details the serious risks security deposit alternative products pose to tenants. Finally, this report offers recommendations to state and local governments seeking to address unaffordable upfront rental housing costs and to rein in these harmful products, such as:
- Increasing access to traditional security deposits;
- Enforcing existing laws governing security deposit alternative products; and
- Prohibiting abusive practices by landlords and security deposit alternative companies.
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