By: Jack Miller
Driven by reduced costs relative to accepting checks, delivering cash, and sending letters to ask for payment after payment is due, many landlords have switched to requiring electronic payment. Although online payment methods offer significant benefits and several companies have reduced the downsides to electronic payment, landlords may require tenants to pay rent through an online portal in Washington. The California legislature addressed this issue because restricting tenant payment methods can lead to significant inequities impacting marginalized groups. Washington should enact similar regulations to protect renters.
How Online Payments Benefit Everyone
Behind online payment applications, an automated clearing house makes secure transactions cheaper. Many people are already familiar with electronic forms of payment including Automated Clearing House payments, or ACH payments. Companies use ACH payments to pay direct deposits for employee wages, and utility companies use this form of payment to withdraw money automatically from customer bank accounts. By receiving banking information and consent from the bank account owner, companies can withdraw or deposit funds to and from the bank account.
Exchanging this information benefits the parties exchanging money in several ways. Customers and employees benefit by getting paid quickly, having the option to set up automatic payments so they never forget to pay, and minimizing the number of hard copies of their sensitive bank information. Companies benefit by using a low-cost way to pay employees and vendors, and receiving payment from customers quickly. Customers, employees, and businesses all often benefit from the ability to make long distance payments quickly. Additionally, all parties benefit because using an ACH payment is substantially cheaper than transferring money through other payment methods such as wire transfers, Venmo, or using a credit card. For example, Venmo costs the user one percent of the transfer amount to withdraw and can take several days to arrive in your bank account, and paying with a credit card usually costs the business around one percent of the transaction. Despite these benefits, exchanging banking information with landlords can result in significant difficulties for tenants.
Direct Bank Account Access Raises Liquidity Concerns for Tenants
Given a business’s direct access to a person’s bank account, several potential problems arise regarding direct withdrawals. A direct withdrawal by a utility company might be acceptable because utilities are generally less expensive bills, but with more expensive bills like rent, personal liquidity issues can arise. Although a renter would have the luxury of not having to remember to pay rent every month, thereby never receiving a late fee, a renter may not have sufficient funds in the bank for the automatic withdrawal. If the tenant has insufficient funds when the landlord tries to withdraw funds, then the bank may charge an overdraft fee and the landlord may charge a late fee. Many rental agreements have grace periods where tenants have a few extra days after the due date where the tenant can pay and not get charged the late fee. With automatic withdrawal, tenants lose this flexibility because landlords have direct access to the tenant’s bank account.
Tenants Retain Control of their Bank Accounts with Zelle
Zelle, and other similar companies, allow users to send or receive payments through an automated clearing house system without exchanging banking information with the other party. Zelle is a payment application integrated into and associated with over 100 banks and credit unions in the United States and is effectively an intermediary between banks to aggregate banking information. Although there is a risk that so much banking information is concentrated with one company, Zelle facilitates faster exchanges of capital, thus reducing the transaction costs and exchange time of transfers between different banks. Users can set up automatic payment or manual payments through Zelle.
Using applications like Zelle, landlords do not have direct access to the tenant’s bank account unless the tenant signs up for direct withdrawal. Tenants maintain the ability to change the timing of their payments, but the landlord benefits by using an inexpensive online payment method without the hassle of mail or checks. Despite Zelle addressing one of the major shortcomings of ACH payments, even requiring the use of a payment method can adversely impact renters from marginalized groups.
California Law Protects Citizens from Required Online Payment
The California legislature passed a law in 2012 requiring landlords to accept several forms of payment. This law mandates that landlords “allow a tenant to pay rent and deposit of security by at least one form of payment that is neither cash nor electronic funds transfer.” With electronic funds transfer defined broadly, California requires landlords to give at least one alternative to electronic payment.
The California legislature considered the impact that requiring online payment could have on the elderly and others who do not have access to the internet or do not know how to use this technology. In considering the bill, the legislature acknowledged that “[b]y prohibiting landlords from requiring tenants to make rental payments online, this bill would ensure that those tenants without access to, or knowledge of, information technology are still able to make rental payments and avoid eviction due to nonpayment of rent.” The legislature also observed, citing the U.S. Department of Commerce’s November 2011 report entitled Exploring the Digital Nation: Computer and Internet Use at Home, that “lower income families, people with less education, those with disabilities, Blacks, Hispanics, and rural residents” would be disparately affected “because these groups generally lagged behind the national average in both broadband access and computer use.” These groups would be more susceptible to eviction by landlords requiring online payment, especially when paying cash is not feasible due to the distance a tenant might have to travel to pay the landlord. Despite these concerns, Washington does not have a similar law.
Washington Should Enact a Statute like California’s Payment Law
Despite the availability of applications like Zelle which allow payment timing and banking information to remain in the tenant’s control, Washington should still adopt a law similar to the California law. Although landlords have the option to use applications like Zelle, landlords may require the use of an ACH payment system. Even requiring the use of an online payment method has the potential to disproportionately impact some individuals. With a law like California’s, Washington could ensure a more equitable relationship between tenants and landlords, and more sophisticated tenants and landlords can still benefit from applications like Zelle.