CHARGING TENANTS “CONVENIENCE FEES” WHEN MAKING ONLINE RENTAL PAYMENTS–GOOD BUSINESS OR BAD BET? (A. Renfro)
It’s no secret that the housing market in DFW and other major Texas cities continues to thrive. As a result, investors turned landlords are seeking efficient solutions to managing their rental portfolios. Many landlords have begun hiring third-party management companies to handle their portfolios, even if the third-party’s offering is limited only to the monthly rental-payment collection. The main role of a third-party management company? To make the life of a landlord that much easier!
The monthly collection processes utilized by these management companies, namely, online payment options, offer tenants a flexible and convenient alternative to the traditional “mail-in” method. But, as the wise John Mellancamp, or even Alice Cooper explained, Nothing’s [For] Free. Most often, the price a tenant pays to make an online rental payment through a third-party’s web portal (all from the comfort of their lease-breaching waterbed) comes in the form of a convenience fee, i.e., a fee charged to process a single credit-card payment through an online portal. A noble landlord may “eat” the online-portal convenience fee and take care of the charge on behalf of the tenant; afterall, it was his decision to outsource. Many landlords, however, pass the cost on to the tenant as a charge over and above their monthly rental charge. For the business-savvy landlord, passing the cost on to the tenant sounds reasonable enough, right? Well, it’s smooth-sailing until an “illegal credit-card surcharge” whistle is blown.
The Texas Office of Consumer Credit Commissioner (OCCC)–the ultimate enforcer of the Texas Finance Code–issued an advisory letter deeming such online practices impermissible (much to the dismay of the Texas Apartment Association (TAA)). Recently, however, Texas Attorney General Ken Paxton released an opinion on the legality of the situation. In the opinion, AG Paxton addressed concerns over the implications of both the Texas Finance and Business & Commerce Codes. After a brief historical discussion of the statutory and common law developments surrounding the applicable sections of the respective codes, AG Paxton placed the onus on landlords and management companies alike to ask two questions.
First, what is the relationship between the landlord and the third-party? If the landlord and third-party truly operate at arm’s length, i.e., the landlord is not charging the convenience, but rather, the third-party (as an independent entity) is imposing the fee for an electronic payment option, the various surcharge statutes will likely not be implicated. The second question is whether the third-party consistently and uniformly charges a fee for all forms of electronic payments. In other words, does the surcharge appear in the online portal only when a tenant makes credit or debit card payments instead of an online ACH payment? If so, uniformity is lacking and the legality of this practice diminishes.
So, what should landlords take away from this? For starters, if a landlord is feeling a sudden streak of cleverness and thinks it would be a good source of additional revenue to process tenants’ payments through his own ready-made payment portal (and of course throwing a convenience fee in there), the traditional “failure to repair” claims against landlords may be just the beginning. According to AG Paxton’s opinion, this landlord may now be tasked with defending claims of illegal credit-card surcharges. And finally, there’s no shame in outsourcing to the third-party, BUT, when at the closing table with the third-party’s fresh-out-of-college sales rep, confirm the uniformity of these online surcharges…you won’t regret it!
The information contained herein is provided for general educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. This firm does not represent you, i.e., no attorney-client relationship established unless and until it is retained and expressly agrees in writing to do so.