The California Assembly Judiciary Committee approved a bill on Tuesday that proposes new regulations on how landlords manage security deposits, while also aiming to implement new limits on tenant screening fees. The bill now advances to the Assembly floor after the author agreed to make some key amendments.

As it stands, AB 2785 by Assemblywoman Lori D. Wilson, D-Suisun City, would cap rental application fees at $50. This cap represents a substantial shift from the current law, which adjusts the maximum fees according to the Consumer Price Index (CPI). This proposed cap is a significant departure from the 1996 law, sponsored by the California Apartment Association, which initially set screening fees at $30 and included provisions for CPI adjustments.

In addition, the bill stipulates that these application fees must be fully refundable to applicants who are not selected by landlords. Also, under the current version of AB 2785, landlords would be mandated to place these security deposits into dedicated, interest-bearing accounts at state or federally regulated financial institutions within 30 days of receipt, and to return any accrued interest to the tenant upon tenancy termination.

Embert P. Madison Jr., a staff attorney for CAA, testified against the bill, emphasizing the need to protect property owners from undue financial burdens and to ensure the continued availability of rental housing in the state. He pointed out that a response to legislative mandates like this would be increased rents.

Madison addressed the bill’s mandate for refunding application fees to applicants who are not accepted for tenancy.

“Here’s the problem,” Madison said. “An applicant may fill out an application but fail to mention, maybe they owe thousands of dollars in credit card debt, maybe they have unpaid child support, maybe life has just happened, and they did not put that on the application. But unfortunately, once we run that application, the dollars that landlords spend cannot be taken back.”

Regarding the current system for setting maximum fees, Madison argued, “The cap being pegged to CPI is sensible, as costs increase over time. Landlords cannot profit from screening fees; the existing law only allows them to recoup the costs associated with processing these applications.”

Regarding the security deposit requirement, Wilson amended the bill to make the placement of deposits in interest-bearing accounts optional, rather than mandatory. Under this change, if no interest is accrued, landlords would only need to return the unused deposit.

Madison acknowledged this change but requested that the author also consider including a 1% administrative fee to cover the cost of banks fees, taxes, and administrative costs that landlords pay if they are required to return to a tenant the interest that may be earned on an interest-bearing account.

During the hearing, Wilson highlighted her willingness to work with the opposition to further refine the bill. “We’ve also been in frequent conversations with the opposition,” she stated. “Continued dialogue on this bill is important. My goal is to find a consensus where everyone can agree and be on the same page.”

AB 2785 is part of a broader legislative movement in California that focuses on the financial responsibilities of tenants beyond rent payments. This movement includes last year’s AB 12, authored by Assemblyman Matt Haney, D-San Francisco; it is effective July 1, 2024. AB 12 will limit security deposits to one month’s rent for both furnished and unfurnished units, a change from the previous allowance of up to two months’ rent.  The law does provide an exemption for small owners who own no more than two residential rental properties that collectively include no more than four dwelling units offered for rent.