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With rent prices soaring, more companies are offering services that allow some tenants to make payments easier by splitting monthly payments.
The companies say they are treading into territory where there is no public policy for tenants, while consumer advocates say the products are expensive at best and predatory at worst. And with no relief in sight for the years-long housing price crisis, tensions are likely to continue.
Roughly one-third of all American households rent, and half of them spend more than one-third of their income on rent, according to Harvard University’s Joint Housing Research Center. For many tenants, paying a lump sum of rent at the beginning of the month means they won’t be able to survive until their next paycheck arrives.
“It fundamentally comes down to cash flow,” said Sameer Goel, co-founder of Esusu, one of the companies offering this service. “It’s not that[tenants]don’t make money. The income they get and the expenses they make basically come and go.”
In interviews, Esusu co-founder Wemimo Abbey often refers to his immigrant mother, who sometimes holds multiple gig jobs, as an example of the company’s target customer.
“This is not a discretionary spend item like a Gucci bag,” Goel said. “This focuses on the fact that one in two Americans has less than $400 in their bank account, and this will solve that problem.”
How does Buy Now Pay Later and Pay Rent work?
Esusu offers what the company calls “installments” as part of a broader package of services, including financial coaching, available with a subscription. In some selected cases, tenants can also choose to access loans from Affirm, a fintech company best known for its “buy now, pay later” services.
These services allow tenants to apply for a loan for a portion of next month’s rent and pay it back later. Each request must be fulfilled individually, even if the tenant has been approved in the past. Borrowers cannot apply for a new loan until they have repaid their first loan, so their debt does not increase permanently.
Mr. Ess declined to share details about how it underwrites tenants or hard data on its loan performance. In an interview in February, when the product was still relatively new, Abbey said most tenants who took out the loans were good borrowers, meaning they had good credit scores and were considered low risk. “I have never seen a single default,” he said.
Is buy now/pay later a good idea?
“These products address very real problems for people, and people are finding every way to make ends meet,” said Ariel Nelson, senior attorney at the National Consumer Law Center.
But Nelson and other advocates say these companies are not offering real solutions and are capitalizing on tenant desperation.
In February, a group called Protect Borrowers released a report on the industry called “Rent Now, Pain Later.” We used a company called Flex as an example of how rent splitting works.
“Users pay a monthly membership fee of $14.99 and a 1% bill payment fee on each payment,” the report explains. If a user repays Flex by credit card, there will also be an additional 3.5% fee.
For example, “A user with $1,500 in rent due on October 1st first pays $909 ($900 in rent and $9 in bill payment fees) and then borrows $600 to cover the remaining rent. Behind the scenes, Flex pays the landlord the full $1,500 directly. The $600 payment is due along with the $6 bill payment fee. It’s October 15th.
All told, if a tenant tries to borrow $600 for 14 days, they end up paying nearly $30, a cost that Protect Borrowers claims is roughly equivalent to a payday loan.
But a Flex spokesperson insists that’s reasonable.
“For consumer advocates, we understand that in a perfect world, income would be enough. It would be perfectly aligned with spending,” Ryan Metcalfe said. There are no late fees. There will be no ability to evict people and housing will become more affordable. It’s a truly wonderful and ambitious world. ”
In reality, renters often end up paying late fees or taking out other, more expensive credit products, which “makes the situation even worse,” Metcalfe said.
Flex, on the other hand, has what Metcalf calls “guardrails” to protect tenants. These include no late fees, no compounding, one-time fees, and no “stacking” of loans (meaning the borrower must repay the loan before taking out another loan).
“Guardrails” are not required
But one of the problems with “guardrails” is that they are not firm requirements, but good faith decisions.
“Fintech may have consumer-friendly policies, but the best recourse for consumers in trouble is the Consumer Financial Protection Bureau, which has been dismantled by the current administration,” said Adam Rust, director of financial services at the Consumer Federation of America, a national nonprofit organization.
As reported by USA TODAY, President Trump has drastically cut back on the bureau, which was created after the 2008 financial crisis.
While both Esusu and Flex say they are highly regulated, Rust explained that the regulations they face prioritize the financial stability of themselves and their partners, not the customer experience.
A lack of consumer support has been cited, often compounded by the fact that many companies offering rent-now, pay-later services are struggling to deliver. The Protect Borrowers report and many social media platforms are filled with complaints from tenants who have experienced glitches and been unable to fix them.
“Several consumers have complained that Flex has been late on rent payments, withdrawn money from their accounts but never paid it, and failed to respond to their earnest requests to resolve the issue,” the report said.
“In some cases, Flex’s mistakes have harmed consumers’ credit scores. In other cases, Flex’s mistakes have led to evictions,” it added.
In response to USA TODAY’s questions about the issue, Metcalfe said, “If something were to go wrong today, we have a make-up policy. Even if Flex was at fault, we’ve covered every expense that a tenant might incur. Whether it’s late fees, we’ve even gone so far as to pay that month’s rent. So…those things do happen, but they rarely happen at this point.”
What else should I do if I can’t pay my rent?
For activists who support consumer housing issues, the rise of fintech solutions like rent splitting is a sign that the system is failing many Americans. Nelson said struggling tenants don’t have many good options.
Tenants can always ask their landlord if they can change the payment date or pay in installments, she suggested. There is no particular reason why a landlord should collect rent in one lump sum or at the beginning of the month. However, a landlord may not necessarily have to agree to such a request, especially in a competitive rental market.
For those who simply can’t pay their rent, Nelson suggested there may be local rental assistance programs available from both the government and the private sector.
Rust said he wonders if the deferred payment service is primarily used as a temporary stop-gap measure, or if tenants simply use the service “month to month” and are always in arrears to always cover their rent.
As Nelson says, “This is just another version of ‘being poor is expensive.'”
