City formalizes push for security deposit alternatives
Financial instruments would allow renters to pay less upfront and secure landlord claims
The city is forging ahead with its push to help New Yorkers find alternatives to the traditional lump-sum security deposit.
The Department of Housing Preservation and Development and the Housing Development Corporation issued a formal request this week to identify companies that could provide other options for tenants, rather than requiring them to pay landlords hundreds, or even thousands, of dollars up front. But — crucially for landlords — this wouldn’t diminish the amount paid to the property owner, who would be insured against claims for damages or unpaid rent.
“This administration is committed to creating better options for renters who might have trouble paying a security deposit all at once, and we’re looking for the right partners to join us in this important goal,” HPD Commissioner Louise Carroll said in a prepared statement.
Nearly a year ago, Mayor Bill de Blasio announced he would pursue allowing renters in city-financed buildings to purchase insurance plans instead of security deposits. He has argued that requiring lump-sum payments for security deposits is a barrier for New Yorkers to move into affordable housing.
And in early May, while the pandemic raged in New York City, Gov. Andrew Cuomo said that the state would allow renters to use their security deposits to pay rent. At the time, tenant advocates were calling for a national rent strike — a push that has receded in favor of legislative efforts to cancel rent debt.
Some estimates peg New York’s rental arrears at as much as $3.4 billion. The increased pressure on renters and landlords to keep the rent, mortgage and tax payments flowing could bolster the city’s push to take advantage of the startups’ offerings.
There are a bevy of companies that offer security deposit alternatives, such as TheGuarantors, Jetty, Rhino and Obligo. Rhino tapped the Rent Stabilization Association’s president, Joseph Strasburg, along with other industry execs and several mayors, to educate policymakers about how these products work.
But there are criticisms of security-deposit alternatives. Companies like Rhino describe their product as insurance, but it is actually a surety bond. While insurance shields the policy-holder — in this case the renter — from liability, a surety bond guarantees the bond-holder’s contractual obligations. With a surety bond, if a claim exceeds the amount of the security deposit, the renter is responsible for the full amount. Not paying such bills could ding a tenant’s credit.
The lower upfront cost also comes with another tradeoff: Renters don’t receive a payout at the end of the lease. The products can also lead to surprise bills for claims greatly exceeding the initial deposit amount, which have resulted in numerous Better Business Bureau complaints, Shelterforce reported.
“Insurance companies and landlords should not be using these products to circumvent the intent of the law,” state Sen. Brian Kavanagh told Shelterforce, adding that lawmakers would be looking into allegations of deceptive practices.