A bill recently introduced in California aims to change existing laws regarding tenant security deposits and screening fees. AB 2785 by Assemblywoman Lori D. Wilson, D-Suisun City, introduces two key changes:
Interest on security deposits: The bill would require landlords to deposit tenant security deposits into an interest-bearing bank account within 30 days of receipt. If enacted, landlords would then be obligated to return the security deposit along with the accrued interest to the tenant upon tenancy termination.
2024 update: Revised maximum tenant screening fee
When considering potential renters in 2024, landlords should note the updated cap on tenant screening fees. This fee encompasses the costs incurred during the screening process, including both the direct expenses for obtaining information and the time invested by you or your staff in this task.
For this year, the maximum chargeable fee to applicants is set at $62.02. This adjustment, effective as of December 2023, is based on the annual increase in the Consumer Price Index, as regulated by the state of California. It is important to remember that the law provides that the fee can be no more than the actual charge of the screening service and the reasonable value of time spent by the landlord or their agent in obtaining information about the applicant, not to exceed $62.02. In other words, if the owner’s actual cost is only $55 for the reports and their time spent, they can only charge the $55 per applicant.
An important update for 2024 also includes changes related to tenant credit reports. Effective Jan. 1, 2023, applicants have been able to purchase their own reusable credit reports. These reports can be submitted to multiple landlords within a 30-day period.
It’s important to note that landlords are not required to accept these reusable credit reports provided by tenants. However, if a landlord chooses to accept a reusable report, they are not allowed to charge the applicant any application screening fee or a fee for accessing the report from a third-party provider. In essence, by accepting a reusable credit report, landlords waive the right to be compensated for the reasonable value of time spent on obtaining and verifying all applicant screening information.
Members can follow this link for CAA’s Industry Insights background paper on screening fees.
Cap on screening fees: Departing from current legislation that adjusts the screening fee annually based on the Consumer Price Index (CPI), this bill proposes a cap of $50 on the screening fee, without any provision for CPI adjustments. This proposed change is significant when considering the historical context of California’s tenant screening laws. In 1996, the California Apartment Association sponsored legislation that initially set the screening fee at $30 per applicant and allowed for annual CPI adjustments, which have increased the cap over time to this year’s maximum fee of $62.02.
Furthermore, the bill outlines specific scenarios in which landlords or agents would be required to refund the screening fee. These include situations where the fee is not used for its intended purpose, such as failing to perform personal reference checks or obtain consumer credit reports (which is already prohibited under existing law), or if the applicant is not selected for tenancy. Additionally, a refund would be mandatory if the collected fee exceeds the maximum amount allowed by law. The legislation also seeks to mandate landlords to include a clear statement of the refund policy in all tenancy application forms.
Recent legislative trends: This bill forms part of a broader legislative movement in California addressing the financial commitments tenants must make in addition to their rent payments. In 2023, the governor signed AB 12 by Assemblyman Matt Haney, D-San Francisco, which, effective July 1, 2024, will limit security deposits to one month’s rent for furnished and unfurnished units, a shift from the previous allowance of up to two months’ rent. The law, however, will allow owners with just one or two rental properties, comprising no more than four units total, to request up to two months’ rent. This exception does not apply when the prospective tenant is a military service member, however.
Additionally, effective Jan. 1, 2023, tenants have had the option to purchase their own reusable credit reports, which can be submitted to multiple landlords within a 30-day period. It’s important to note that while landlords are not required to accept these reusable credit reports, if they do choose to accept them, they are prohibited from charging the applicant any application screening fee or a fee for accessing the report from a third-party provider.
