Some landlords are requiring new tenants to pay an alternative form of security deposit which demands they pay the deposit in monthly installments instead of providing the traditional lump sum.
Connecticut lawmakers and housing advocates are calling the practice a deceptive scheme.
The security deposit alternatives have popped up in recent years, according to Connecticut Fair Housing Center co-director and staff attorney Pamela Heller.
The fees are not refundable and are often renewed yearly alongside the lease.
Security deposit alternatives are particularly damaging for lower income renters who utilize Section 8 housing vouchers, Heller said.
“Charging them this type of fee, especially on a regular basis, really interferes with their ability to use their voucher because they don't have extra money,” Heller said. “Their rent amount is based on their income. It won't take this into account.”
The motivation for landlords to use the alternative system is also unclear, since landlords wouldn’t have readily available funds to fix any apartment damage, like a traditional security deposit provides, according to Heller.
“It is a housing discrimination issue from our perspective if landlords are requiring this,” Heller said. “Especially if they're only requiring it of people with vouchers, because that is disparate treatment under the fair housing laws.”
Sen. Richard Blumenthal sent a letter to the Federal Trade Commission (FTC), requesting an investigation into the practice. Blumenthal is also calling for stronger oversight and regulation of the companies that operate the alternative security deposits.
Renters incur greater costs when agreeing to the security deposit alternative, Blumenthal said.
“Tenants can be deceived, fooled into thinking that somehow the money is refundable, which it’s not, or that it can be used to reimburse for damages, which it will not,” Blumenthal said.
Blumenthal, along with Sen. Elizabeth Warren from Massachusetts, requested the FTC issue rules requiring disclosures regarding the full costs and fees, reimbursement obligations and non-refundable nature of these products.
Blumenthal and Warren also want the FTC to prohibit misleading marketing practices that misrepresent how the alternative deposits compare to traditional security deposits.
The Connecticut Apartment Association (CTAA) issued a statement saying it is concerned about the implications of limiting security deposit methods.
“CTAA supports measures that allow Connecticut residents to secure housing more quickly, especially when they have marginal credit or income qualifications,” the statement read. “Restricting flexibility on deposits may unintentionally backfire on people dealing with financial hardship, shutting the door on people who deserve a fair chance.”
