Panel will delve into proposed FTC rule at NAA's Apartmentalize.
When does ancillary income outside of base rent—long a staple of rental housing operations—cross over into secondary income? Some outside the rental housing industry have labeled income aside from monthly rent payments as “junk fees.” How can rental housing companies ensure that these supplemental fees bring value rather than irritation to residents, especially against the back-drop of increased political scrutiny from all levels of government? Panelists during an upcoming session at NAA’s 2024 Apartmentalize conference in Philadelphia will delve into these and related questions, including their thoughts about a proposed Federal Trade Commission (FTC) rule to prohibit what the agency terms “hidden and falsely advertised fees” across a range of industries, including rental housing.
Panelist Gina Carter, CAM, CALP, CAPS, Vice President of Operations at Blue Ridge Companies in High Point, N.C., says she and others on the NAA Education Advisory Board settled on the topic because it’s a fresh issue that many in the industry are focused on right now. “It’s a topic that people are curious about,” she says.
One aim will be to educate attendees about the FTC’s rule, which could be published by the time Apartmentalize convenes, Carter says. “Our goal is to let everybody understand how the rental industry should operate under these changes,” she says.
Panelist Amanda Kitts, Vice President of Operations for RPM Living in Austin, Texas, says one takeaway from the panel’s brainstorming has been the fact that legislators sometimes make decisions about issues like so-called “junk fees” in a vacuum. “Unfortunately, you only know what you know,” she says. “And you only have the resources that you have. And you have to make a decision based on what information is presented to you, or that’s available, or that you paid attention to, because we are the distracted society now.”
Transparency
Owners and operators can and should respond (if they haven’t already) to concerns raised by legislators and regulators about transparency, Carter says. “The goal is not to have any hidden fees,” she says. “You don’t want somebody to move in and then say, ‘OK, we told you that your rent’s going to be $1,000… and you’re actually paying me $2,000 because I have all these hidden fees I forgot to tell you about on day one.’ And then they get there, and they can’t afford the rent.”
To the extent that legislators and regulators just want companies to disclose what those fees are, Kitts understands the public sector’s involvement. “A lot of us have quotes now that tell people, ‘This is what you’re going to have to do,’ those types of things,” she says. “I don’t think we really know what the government’s thinking. But they’ve used the [term] ‘junk fees.’”
Carter suggests starting by looking at fees such as application fees. When you look at how much it costs to process an application, you might determine that it’s the same cost across multiple markets and states. Suppliers should also become familiar with the rules around application fees and ensure their pricing aligns with such rules, she says.
Kitts believes that application fees should vary by market based on basic economics, in the same way the price of a gallon of milk is different in Manhattan than in Matthews, N.C. But she notes that legislators sometimes have their own ideas: The State of Maryland, for example, where she has properties, passed a law capping application fees at $25.
“Now, that decision was made in a vacuum, of, ‘OK, that seems like a fair fee to charge someone to apply,’” she says. “At the time, that probably covered credit and criminal [checks]. But now we have fraud, so we have to use a company to check all of our pay stubs because pay stubs are fraudulent. Social Security [numbers] are fraudulent. IDs are fraudulent. Bank account statements are fraudulent. We’ve had to add another service to help screen [those issues], so that we can make sure the person that’s going to move into this unit is going to be able to afford the unit.”
Multiple Types of Fees
Once a resident moves in, companies may charge for things from garbage to cable to pet fees to renters insurance, Carter notes. “The goal will be to educate [attendees] that, as long as these items are [legal], clearly identified and/or optional, then you’re following the right protocol,” she says.
However, Carter says, “The concern is that this information is not shared upfront,” which has spurred the government’s scrutiny. “The federal regulation is proposing, ‘Stop charging all of these junk fees and making your [residents] alarmed because you’re not being transparent and charging them after the fact.’”
Regarding issues like utilities, Carter says, rental companies are typically just trying to break even. “We’re charging fees to cover our expenses,” she says. “If we have an increase of utilities, such as water, by 6%, we want to be able to charge that increase back to our residents.” This reality can be seen in NAA’s “Breaking Down One Dollar of Rent,” which underscores the tight margins that rental housing providers deal with every day.
Utilities is another area where Kitts previously faced challenges in Maryland. “–What’s going to end up happening is substandard housing,” she says. “Because you can either lump it all in your rent, which is going to make you rent higher, or you can break it out so everybody is transparent and seeing what they’re paying for—whether that’s an optional fee or it’s a mandatory fee. If it’s your trash, or your water, or your sewer, or your electric, so that you know what you’re using so that you can conserve and control your expenses a little bit.”
Some of the newer fees have come into being in response to renter requests, Kitts says. “The resident doesn’t have renters insurance, so we’re like, ‘OK, well, we’re going to make a solution. If you don’t want to go get your own, [the company can provide it]. Or you can go out and get it in the free market. That’s up to you.’ So some of it’s in response to the consumer, some of it’s in response to services people want, and some are just a business need—and you’ve got to know which one [a given fee] is.”
Public officials, however, sometimes focus solely on providing affordable rents without looking at what’s behind the amounts charged, Kitts says. “They don’t look at what are the fees for, and why are they what they are, and what was the business calculation for it?” she says. “People are taking a very broad brush to paint this subject. And that’s what you can’t do, is say, ‘Well, it should only cost $25 to run an application.’ Well it could—for a private [owner], who’s not running all these [checks] because they don’t have as much liability out there.… Insurance costs are astronomical now. Frivolous lawsuits have really pushed that envelope. To me, everything’s connected. We can’t regulate ourselves out of this.”
The rental industry needs to better understand how to justify its fee structures, Kitts says. “That’s where we get in trouble is, we don’t take the time to explain the story,” she says. “And then the legislators aren’t taking time to say, ‘OK, what is really going on here, and why is this happening?’” She adds, “Legislators have dug in and been like, ‘Oh, how can we make housing more affordable? Oh, let’s get rid of these other fees,’” without looking at the other side of the ledger.
Carter says, “What matters is what you charge, why you charge it, and that you’re telling people about the charge upfront,” she says. “We want to give Apartmentalize 2024 attendees the most updated information.”
NAA has worked to amplify the industry’s voice throughout the FTC’s rulemaking process and continues to engage as the agency considers implementation of this whole-of-economy rule. NAA remains committed to advocating on behalf of the rental housing industry on this issue and the many others that impact the rental housing sector and its interests.
Ed Finkel is a frequent writer for units.
Learn more at the Apartmentalize session, “Is that Ancillary Income, or Junk in your Trunk?” on Thursday, June 20 at 2:15 p.m. in Philadelphia.