NO MORE “JUNK”

Welcome to Fair Housing Month! HUD warns the housing industry about “Junk Fees.”

It’s the Law By HOWARD BOOKSTAFF, Hoover Slovacek LLP, HAA General Counsel

LAST MONTH, I wrote about the Biden-Harris Administration’s Blueprint for a Renters Bill of Rights. In the blueprint, the Administration called for clear and fair leases without hidden or legal fees. President Biden urged federal agencies to do everything they can to crack down on “junk fees” across the economy, from banking services to cable and internet bills to airline and concert tickets.

On March 7, 2023, Marcia L. Fudge, the Secretary of HUD, published an open letter to the housing industry calling for action on “junk fees” that renters face, joining President Biden’s call to eliminate “these hidden fees, charges or add-ons.” Building on President Biden’s initiative, Secretary Fudge called on housing providers and state and local governments to adopt policies that promote fairness and transparency of fees faced by renters.

The letter penned by Secretary Fudge identifies a number of issues of which the housing industry should take note.

Discriminatory fees

Secretary Fudge states that in a rental market where perspective renters often apply to several units, non-refundable application fees present a financial burden for many applicants, particularly people with low incomes. When renters are charged even modest rental application fees for multiple units, the cost can quickly add up to hundreds or even thousands of dollars. Secretary Fudge stated that research shows renters of color are more likely to be charged application fees and to be charged higher fees compared to white renters.

Fudge cited an article from Zillow to support her claim that discriminatory practices lead to higher fees. The article, entitled “Renters of Color Pay Higher Security Deposits,” states that renters of color typically submit more applications – and pay more in application fees – before they secure a place to live than white renters do. Renters of color also typically pay a higher deposit when they move in. The article states:

• Higher upfront costs add to the challenge faced by renters of color searching for a new home in today’s tight rental market.

• Renters of color pay security deposits more often than white renters, and the deposits they pay are typically $150 higher.

• Black and Latino renters report submitting more applications than white or Asian American and Pacific Islander renters. The typical white or Asian American and Pacific Islander renter submits two applications, while the typical Black or Latino renter submits three.

The article states that the higher fees and number of applications for renters of color are likely partially attributable to their age, income and geography. The typical renter of color is two years younger than the median white renter, meaning two fewer years of potential income growth. White renters are also more likely to live in rural markets and the Midwest, both of which are generally less expensive. Asian American and Pacific Islander and Latino renters, in particular, are more likely to rent in the West, which includes many of the country’s most expensive and competitive rental markets.

Tenant screening fees

Secretary Fudge states that landlords typically use application fees to pay for tenant screening reports, and these reports may have inaccurate information and questionable validity in predicting renter behavior. If perspective renters are not given the opportunity to review and correct the information in these reports, these renters may end up paying numerous application fees only to be repeatedly rejected for this inaccurate information in their tenant screening reports.

Hidden and unnecessary fees

Secretary Fudge states that even after renters secure housing, their monthly costs may exceed the listed price of the unit due to hidden and unnecessary fees. The hidden fees may include move-in fees, late fees, high-risk fees or security bonds, convenience fees for online payments, and others.

Disclosure of fees

Secretary Fudge urges all fair housing providers, as well as state and local governments, to take action to better disclose fees charged to renters in advance of and during tenancy. These actions should aim to promote fairness and transparency for renters while insuring that fees charged to renters reflect the actual costs to housing providers.

The Secretary encourages all rental housing providers, as well as the companies that provide leasing and property management services to providers and rental platforms, to adopt policies that promote fairness and transparency for renters to:

• eliminate rental application fees or limit application fees to only those necessary to cover actual and a legitimate cost for services;

• allow a single application fee to cover multiple applications on the same platform or across multiple properties owned by one housing provider or managed by one company across providers;

• eliminate duplicative, excessive and undisclosed fees at all stages of the leasing process, such as administrative fees and other processing fees, in addition to rental application fees; and

• clearly identify bottom-line amounts that tenants will pay for move-in and monthly rent in advertisements of rental properties and in lease documents, including all recurring monthly costs and their purpose.

HUD’s next action

As part of its leadership on this topic, HUD commits to sharing research, best practices and tools that state and local governments and housing providers can use to increase transparency and promote fairness for all fees associated with renting a home.

In addition, HUD commits to work with other federal agencies to release best practices on the use of tenant screening reports and strongly encourages property owners to align with these best practices on the use of tenant screening reports. This includes the importance of communicating clearly if a tenant screening report is used to reject a rental applicant or increase fees, as well as providing applicants the opportunity to address inaccurate information in these reports.

The Secretary stated that she will continue to look for other opportunities – engaging Congress, state and local leaders, and housing practitioners – to improve practices in the rental market.

A note on fees

Whether or not you agree with the Administration’s and Secretary’s positions stated in the Blueprint for a Renters Bill of Rights and the Secretary’s letter, it is apparent that the federal government is focused on the apartment industry. In light of Secretary Fudge’s letter and HUD’s request that housing providers adopt policies that promote fairness and transparency for renters, you might consider the following when adopting any fees:

• Be sure that all fees are agreed to in advance in writing by the resident. To promote fairness and transparency, fees that applicants and residents will be expected to pay should not be ignored in advertisements and should be identified in the application contract and lease documents.

• Be sure that the fees you are charging are not otherwise prohibited by law. For example, Texas law heavily regulates what fees can be charged in connection with water billing. Up to a 9% service charge is permissible for submetered water billing only. Be sure that any fees you charge are not in conflict with applicable law.

• Be sure that the amount of the fee is reasonable considering what the fee is supposed to cover. As HUD has suggested, fees should cover actual and legitimate costs for services. For example, if you assess an amenity fee, it would be beneficial if the fee covered the cost associated with operating or maintaining amenities.

Housing providers should be aware that operations and policies are under scrutiny. In anticipation of the issues addressed by the government (and for a good time to celebrate fair housing month!), it would be beneficial to review policies and procedures regarding fees.