Understanding the Implementation of Rent Reporting Programs for Residents of Affordable Housing in California
Rent reporting — the monthly reporting of tenant rent payments to at least one consumer credit bureau — is a way for renters to establish a credit history. Photo credit: shutterstock.com/dc_slim
Brad Pollock, Zach McRae, and Elizabeth Rudd from HUD’s Office of Policy Development and Research (PD&R) present findings from interviews with property owners and managers in California responsible for the implementation of Senate Bill 1157, which requires certain landlords to offer rent reporting programs to residents.
What Is Rent Reporting?
When U.S. homeowners make their monthly mortgage payments, these payments typically are reported to credit agencies. This reporting contributes to homeowners’ already established credit histories, which affords them favorable rates on other financial products. This opportunity is typically unavailable to renters, even though most regularly pay their rent and experience negative credit effects if they miss payments. An increasingly popular way to address this inequity is rent reporting, “the monthly reporting of tenant rent payments to at least one of the major consumer credit bureaus for inclusion on a traditional consumer credit report.”
What Is Credit Invisibility?
Most Americans wishing to buy a home, lease an apartment, or buy a car face a credit check. But what about those with little or no credit history? Nearly 45 million adults in the United States have a limited credit history, including 26 million credit-invisible adults. Consumers who are black, Hispanic, recent immigrants, young, and low income are more likely to be credit invisible. Those with unequal access to mainstream credit may turn to predatory financial products and experience greater difficulty building wealth and economic mobility.
Existing Research on Rent Reporting
A 2019 HUD study examined the potential effects of positive-only and full-file rent reporting for residents of developments managed by three public housing agencies. HUD found that when positive-only and full-file payments were reported, most residents saw their scores increase. Other studies of positive-only and opt-in reporting found increases in participants’ ability to establish a credit history and increases in average credit scores among low-rent and subsidized housing tenants. Additional research on rent reporting can be found at Credit Builders Alliance.
What Is California Senate Bill 1157?
In 2020, the California State Legislature passed Senate Bill 1157 (SB 1157), which requires private landlords with 15 or more subsidized housing units to offer their tenants the opportunity to have their rent payments reported to major credit bureaus. The bill allows landlords to charge their tenants the lesser of $10 per month or the actual cost of providing the service. SB 1157 went into effect on July 1, 2021, and sunsets on July 1, 2025.
As the first anniversary of the law’s effective date approached, PD&R staff interviewed eight property owners and managers in California who use HUD’s project-based rental assistance program to understand their experiences with the implementation of SB 1157.
Several themes emerged from the conversations, including varying levels of landlord awareness of rent reporting, initial difficulties with setup and resident uptake, and a variety of program designs and per-unit costs. One common refrain was how difficult it was to overcome residents’ distrust of the initiative and communicating the tangible benefits of rent reporting. These conversations also allowed landlords to recommend changes for future programs like SB 1157.
Landlord Awareness of Rent Reporting
Among the landlords who were interviewed, awareness of rent reporting varied widely before SB 1157 went into effect. Landlords with more capacity to administer general financial empowerment programs seemed more likely to report having knowledge of or interest in such programs. Other landlords expressed surprise about the new law’s requirements.
The interviewees stated that the bill lacked operational guidance for program setup. Although some landlords initially considered reporting directly to credit bureaus, each landlord ultimately chose third-party software vendors to help with implementation. The third-party vendors played a critical role in the early implementation stage by training staff members and offering modules that could integrate rent reporting into the landlords’ existing property management systems and automate some of the administrative duties. Some landlords who passed on the cost of rent reporting to their residents, however, still had to manually reconcile current resident enrollment with their billing systems to avoid inadvertently charging tenants for rent reporting after they withdrew from the program.
Outreach and Enrollment
Landlords were responsible for resident outreach, recruitment, and enrollment. The law mandates that landlords must provide residents with a self-addressed, stamped envelope to return enrollment forms. Landlords reported that this requirement was costly and unnecessary, especially if they gave residents onsite enrollment assistance.
SB 1157 prescribes an opt-in system of rent reporting that does not require residents to participate. The resident enrollment rate was low, with landlord-reported estimates ranging from approximately 4 percent to 15 percent. Many landlords hoped that enrollment would improve as the public health and economic effects of the COVID-19 pandemic subsided. Landlords and residents prioritized access to rent relief programs offered through the American Rescue Plan and the Coronavirus Aid, Relief, and Economic Security Act during the first year of implementation. Now that California’s deadline for rent relief has passed, landlords stated that more resources can now be dedicated to promoting rent reporting programs. More importantly, the timing of the law and the COVID-19 pandemic made the program less attractive to residents as the immediate need for rent relief and loss of income made communicating the benefits of the program difficult.
SB 1157 requires that landlords offer residents the opportunity to participate in rent reporting at the time of the lease agreement and at least once annually thereafter. The most common strategy landlords used to meet the requirement was including flyers in lease-up packages for new tenants. For existing residents, landlords promoted the program through a range of activities, including outreach at resident meetings, events promoting rent reporting with incentives such as gift cards, posting flyers in common areas, and mailers. Some landlords promoted the program online within their rent payment portals or posted QR codes at their properties that linked to information on rent reporting and enrollment instructions. One landlord’s third-party vendor advertised directly to residents. Two landlords mentioned promoting and offering the program during annual recertification to maintain consistency. One landlord who served populations who were at risk of homelessness or have recently experienced homelessness stated that providing information at annual recertification would be challenging because of the acute needs of the residents.
Demographics appeared to affect enrollment rates. Some landlords reported lower enrollment rates at their properties for seniors than at properties with more families. Understandably, landlords serving residents with the most acute needs, such as those recovering from addiction or at risk of homelessness, had lower enrollment rates because those residents were dealing with more immediate challenges.
One of the most important considerations for a rent reporting program is whether it should be full file (meaning that it reports both successful and missed payments) or positive only (meaning that it reports only successful payments). Three of the landlords we interviewed used full-file reporting, whereas the others reported only positive payments. Some landlords reported that they removed residents from the program after a certain number of missed payments to protect them from negative impacts. Those residents could reenroll in the program after a 6-month waiting period. Landlords who used the positive-only structure stated that residents were more inclined to enroll in a positive-only program, and landlords were also sensitive to not using the program to penalize residents who missed rent payments, especially during the pandemic.
Tension between property managers and owners and third-party vendors existed regarding opt-in or opt-out policies. SB 1157 requires the use of opt-in policies, and many of the landlords said that many third-party vendors initially wanted to implement an opt-out system, which was more conducive to their business model.
None of the landlords interviewed stated that they were offering other forms of alternative reporting such as utility payment reporting, although one said that a similar utility reporting program sparked their initial interest in rent reporting.
Program Costs and Enrollment Fees
Each landlord paid a unique rate, and the fee structure varied depending on the third-party vendor. The landlords reported that for each unit, their vendors charged approximately $1.00 to $13.95 per month to provide rent reporting. All the landlords except one were charged on a per-unit basis; one landlord was charged on an individual or family basis. In addition, one landlord reported that the vendor charged different rates for rent-restricted, affordable, and market rate units.
In some cases, the charge to residents included a base fee to cover the vendor’s administrative and compliance duties plus an additional fee to report the resident’s rent. For example, one landlord reported paying a fee of 50 cents per unit on their entire portfolio (regardless of each unit’s enrollment in rent reporting), which covered costs such as educational materials for residents, data storage and security, signup forms, and the related software. That landlord then paid an additional $1.40 per unit for tenants who chose to enroll, which covered the cost of reporting those tenants’ rent payments to the credit bureaus.
Among the landlords who reported paying a per-unit fee across their entire portfolio regardless of enrollment in rent reporting, one landlord reported paying approximately $4,900 monthly, another paid $11,500 monthly, and a third paid $16,200 monthly (although in this last case, the landlord included the cost of enrolled residents). Charging this fee across all units was intended to avoid prohibitive per-unit costs if landlords passed the cost on to residents. This approach had some unintended consequences for landlords who spread the cost across their different properties. For example, one landlord reported that their properties with more seniors had lower enrollment in rent reporting and therefore had lower rent reporting expenses than their other properties.
Most of the property owners and managers interviewed covered the enrollment fees on behalf of their residents, because they had the desire and the capacity to make the program accessible and barrier free. One landlord even stated that they have included the cost of covering resident fees into their future budgets. Some landlords who did cover resident costs were concerned that as program uptake increased, covering costs on behalf of their residents would not be sustainable, and adjustments would be required.
Landlords who passed the charges on to their tenants cited direct customer relationships between the vendor and residents, administrative burden, or lack of overhead within the properties’ operating funds as reasons to charge the residents.
The landlords shouldered some additional administrative costs, although they were not prohibitive and were covered out of the property’s operating fund. Third-party vendors varied in how much administrative support they provided. Materials, office supplies, and staff time constituted most of the administrative costs for landlords. For example, some landlords had to manually divide and process invoices from their various proprieties, although they hoped to automate these functions soon.
Most of the landlords were not receiving financial assistance to offer rent reporting, although one reported using a small grant, and another drew on funds from its economic mobility program.
Some of the third-party vendors offered products that complemented the rent reporting program. These products included a microlending program for residents who need rent assistance and a fraud and identity theft protection program. Some vendors also offered residents a service that (for a $50 fee) would upload the past 24 months of rent payments to credit agencies, providing an immediate credit score boost for residents with a record of successful payments.
Initial Effects on Tenant Credit
One landlord reported that tenants’ credit scores increased by an average of 39 points, from an average starting credit score of 630 to an average credit score of 669. Another landlord reported a median credit score of 727 among their residents, with 44 residents establishing a new credit history and 44 percent of the residents improving their credit scores.
The long-term effect of SB 1157 on tenant credit scores is not yet known, and the preceding anecdotes do not necessarily represent all tenants. Future research should obtain the perspectives of tenants and other stakeholders as well as work with third-party vendors to obtain credit outcome data. Note that different credit scoring models exist (see sidebar).
The most common challenge landlords noted was resident education and buy-in as well as training staff to effectively communicate the benefits of the program. The challenge of trust-building is critical. Many landlords said that residents were suspicious of how landlords and vendors would use their data. Landlords also observed that the inability to demonstrate the short-term benefits of the program contributed to low uptake among residents. Some landlords mentioned that some residents expressed despair that they would ever attain good credit. One landlord stated that the staff felt that the program would not benefit low-income residents, although they understood why this program would benefit market-rate renters. If landlords cannot cover tenants’ costs for the program and serve the lowest-income residents, the program represents an additional cost burden for tenants who already struggle to stay current on their rent.
Landlords also expressed some frustration at the law’s bureaucratic requirements, such as the requirement that landlords provide each resident with a self-addressed, stamped envelope to apply, even if the resident signed up for the program directly with management.
Some landlords stated that roadblocks included vendors that were not familiar with the law’s requirements and issues with system integration.
One landlord expressed concern about the lack of synchronization between the date rent gets reported to credit agencies and the date rent is due. For example, a tenant could miss the rent due date but then pay it later in the month, with the reporting system recording a positive payment even though the late payments were putting the tenant at risk of eviction. This concern applied to the positive-only reporting model; in the full-file reporting model, late payments are reported as missed.
When asked, many landlords expressed hope that the program would help improve on-time rent payment as residents saw their credit scores improve over time.
Despite the level of specificity in SB 1157, landlords varied in their understanding of the bill’s requirements. Even housing providers that have financial literacy programs for their tenants are not credit reporting experts, so general ambiguity existed concerning full-file versus positive-only reporting and opt-in versus opt-out reporting. Confusion over the bill’s provisions was noteworthy and demonstrates the need for clarity from lawmakers.
Recommendations and Conclusion
The interviews provided landlords the opportunity to recommend improvements for future implementation and replication. Among their recommendations were the following:
- Implement an education campaign that targets low-income renters in subsidized housing before rolling out similar programs.
- Incorporate rent reporting into broader financial literacy and economic empowerment programs.
- Require that policies include a mechanism to allow landlords to confirm that third-party vendors can execute the program regulations.
- Consider a more realistic timeframe to establish procedures and systems for implementing policies.
- Use standardized forms or preapproved templates to clarify reporting, contact information, and legal rights.
- Consider landlord capacity when developing similar policies. Program implementation varied depending on the level of resources a landlord managing affordable housing could provide with limited funds. Leveraging third-party vendors was the most cost-effective way for landlords to implement the law.
- Fund dedicated staff to help enroll residents.
- Create incentives to encourage companies to reach out directly to residents rather than relying on landlords to run the program.
PD&R understands that this article only offers the perspectives of one small set of stakeholders. PD&R also recognizes that the credit outcomes for the tenants discussed in this article are not yet known. Although some landlords were able to report changes in average credit scores, data were not sufficient to make claims about the program’s overall impact.
PD&R would like to thank the eight property owners and managers in California for their time and their input for this project. Their contributions will inform future studies and increase HUD’s understanding of potential strategies to help HUD-assisted households build assets.
Brittany Ennis. 2022. “The Benefits of Reporting Positive Rental Payments.” Experian Insights, 31 January. Accessed 20 June 2022. ×
Rent Reporting definition provided by Credit Builders Alliance Rent Reporting Technical Assistance Center. ×
Kenneth Brevoort, Philipp Grimm, and Michelle Kambara. 2016. “Credit Invisibles and the Unscored,” Cityscape 18:2, 9–34. ×
Kelly Thompson Cochran, Michael Stegman, and Colin Foos. 2021. “Utility, Telecommunications, and Rental Data in Underwriting Credit,” Urban Institute.×
Predatory financial products can include products such as payday loans. A payday loan is a small unsecured loan that is due in full on the date of the borrower’s paycheck. Payday lenders conduct little to no underwriting, and they take on financial responsibility, which makes payday loans riskier than loans that require a credit history check. The borrower gives the lender the right to take the loan amount directly out of the client’s bank account on the day the loan is due. ×
Lisa Servon. 2017. The Unbanking of America: How the New Middle Class Survives. New York: Houghton Mifflin Harcourt. ×
Michael Turner and Patrick Walker. 2019. “Potential Impacts of Credit Reporting Public Housing Rental Payment Data,” U.S. Department of Housing and Urban Development, Office of Policy Development and Research.×
Office of the New York City Comptroller, Bureau of Policy and Research. 2017. “Making Rent Count: How NYC Tenants Can Lift Credit Scores and Save Money”; Experian RentBureau. 2014. “Credit for Renting: The Impact of Positive Rent Reporting on Subsidized Housing Residents”; Sarah Chenven and Carolyn Schulte. 2015. “The Power of Rent Reporting Pilot: A Credit Building Strategy,” Credit Builders Alliance. ×
Annual recertification is the yearly verification and recertification of family composition and income. Owners must verify family composition and income to recalculate the tenant’s total tenant payment, tenant rent, and the assistance payment from HUD. ×
SB 1157 explicitly limits charges to $10 per month per tenant. The $13.95 charge is a “family” charge applied to multiple tenants. ×