A New Consumer-Reporting Law Creates an Amenity Opportunity
by Dom Beveridge | June 29, 2021
On this blog, we frequently write about amenities. We praise those that deliver ROI to apartment operators, criticize the habit of adding amenities that don't. And we advise many clients and readers on how to realize the returns on their amenity investments. Most of the time, we focus on the kinds of amenities that enhance physical assets. However, the passage of a recent bill in California reminded us that there is more to amenitizing apartments than crown moldings and granite countertops.
On July 1, California SB-1157 will go into effect. The new law will require landlords of assisted housing developments (i.e., multifamily rental housing whose development receives governmental assistance) to extend an option for residents to have their rental payments reported to at least one consumer reporting agency. The bill seeks to address: "Lack of credit history as a self-perpetuating barrier to economic mobility." By simply reporting monthly rent payments, residents have an opportunity to build credit history. The bill also highlights an opportunity for multifamily operators: to offer an easy, automated way to report rent payments to credit bureaus and help their residents to build their credit scores.
Credit-Building as an Amenity?
The California law provides a natural catalyst for innovation: operators must at least offer the service to all new residents. Our friends at multifamily payments specialists Domuso, for example, moved quickly to integrate Resident-Link, a leading provider of credit reporting and identity protection, into its digital payments platform. The innovation makes it easy for operators to comply with the new law. But, more importantly, it allows multifamily residents to improve their credit standing simply by paying rent on time, with the added security of knowing their identity is being protected.
By providing services like these, operators can boost awareness of an important benefit of which most residents are not even aware. According to the Harvard Joint Center for Housing Studies, over 35 percent of U.S. households rent their homes, yet those monthly payments have no impact on consumer credit scores. With more than a third of residents not currently receiving this benefit, operators have an opportunity to offer the service proactively and help educate residents about potentially improving their financial health.
Rewarding Financial Discipline
We are currently seeing financial services innovations throughout the multifamily industry. For example, credit screening is becoming more precise as AI apps are beginning to mine credit history data. Deposit alternatives have for some time been lowering the barriers to renting. This tide of innovation can change the way that operators think about risk. A more proactive strategy still is one that promotes healthy financial habits for residents, which ultimately creates economic value for the property.
Reporting rent to the credit bureau can act as an extra incentive for on-time rent payments, and the benefits to residents are compelling. Those who use this opportunity to build their credit for behaviors they are already doing (i.e., paying their rent) will benefit from any future activity that considers financial discipline. For example: should they be screened again for another property, they will have an easier time with better credit, or if they apply for a vehicle loan, they will receive a lower interest rate with good credit. And the establishment of a large, on-time monthly payment for housing helps the process of qualifying for a mortgage.
While the bill that started this conversation is from California and focused on assisted housing, the benefits have a much further reach. Any resident, at any property, with any type of credit profile (e.g., bad, good, excellent) can benefit from a positive tradeline on their credit report for arguably their largest monthly payment. Operators that make it easy for residents to capitalize on the opportunity can reap the benefits of a great amenity that will have even more impact on their residents' lives than those back-splashes and accent walls that they might be considering!