Renters won't need cash for Security Deposit

[Lamont Marable]

In Cincinnati Ohio, renters won’t necessarily need a cash security deposit anymore under a new law passed by Cincinnati City Council. This will help alleviate barriers to renting an apartment, the law says landlords must give renters options other than a traditional cash security deposit.

There are three alternatives: an installment plan that allows the renter to pay the security deposit over the course of at least six months; a reduced security deposit no more than the equivalent of 50 percent of the first month's rent; or rental security insurance in which tenants pay an insurance company a nominal nonrefundable monthly fee in lieu of a deposit. Once a renter opts for the alternative security deposit, then we as landlords can pick which option to offer the renter.

[John Lenhart]

This law is really nothing to be scared about. 1) it only applies to properties in the city limits (that is only about 1/3 of the county and about 15% of the entire regions population. The vast majority of apartments in the region do not fall under this.

2) Does not apply to Section 8 units (HUD policies trump anything city hall does)

3) Does not apply to owners with less than 25 units in the city (small landlords do not need to worry about this) 

So if you are one of the small number of owners to whom this law does apply (like myself), as a landlord, if you accept only 1/2 month of rent for the security deposit, you do not have to offer an option for renters insurance. This means you can take 1/2 month security deposit and then require first and last month rent upon move in and still not have to offer the insurance alternative.

OR 

If you still choose to require a full month rent for a security deposit, then the law only requires that you "OFFER" to take deposit insurance as an alternative to a full upfront 1 month security deposit (Or offer installments). OFFER means just that. It means that as a landlord, you can comply with the law by offering to take it (and still charge a $500 admin fee or some other sort of fee for the privilege of selecting the insurance alternative as an option. In other words, you as the landlord can put your thumb on the scale to get the tenant to pick the option you desire the most. If you prefer they pick Tenant Insurance, certainly incentivize  them to do so. If you prefer they pick your traditional security deposit model, incentivize them to go that direction. Remember, even with the law, the landlords have the power to influence the tenant's decision. 

Also, another thing to keep in mind, with some of the insurance products out there like Rhino, the landlord will no longer be able to offer a month to month alternative for the tenant and all leases will be required to be renewed annually (from a practical standpoint). This is not something tenants will want, and another reason to discourage them from this type of product. 

Ultimately, this law is nothing to fear for landlords. It is a giant nothing. However, if I were a working class tenant, it is concerning. Some of the products available (Namely the Rhino product) create what amounts to a predatory loan  type product for a tenant whereby they get stuck in a monthly cycle of making continuous payments even after they may have paid a full month of security deposit and would receive no further benefit. THere are a lot of other issues that can arise from this product that make it like the payday loan industry. It is designed to work best for Class A type product but when applied to working class properties, it can be troublesome (to the poor, not necessarily landlords).