A new report from the National Consumer Law Center is warning that a growing number of renters across the country, including in the District, are being pulled into costly “security deposit alternative” programs that consumer advocates say strip tenants of legal protections while generating profits for property technology companies.
The report, “Tenant Insecurity: How Security Deposit ‘Alternatives’ Raise Tenants’ Costs and Erode Their Protections,” examines the rapid expansion of so-called PropTech products that landlords increasingly market as substitutes for traditional security deposits. Researchers say the products are often promoted as a way for renters to avoid paying large upfront deposits while moving into apartments faster, but many tenants ultimately pay far more over time through nonrefundable monthly fees, debt collection efforts, automatic bank withdrawals, and disputed damage claims.
“Security deposit alternative products attempt to evade state laws designed to protect tenants,” April Kuehnhoff, senior attorney at the National Consumer Law Center and co-author of the report, said in a statement. “They are marketed as a helpful tool for renters struggling to raise the sizable fees required to move into a new apartment. But in reality, they’re just another way to extract profits from tenants with low incomes.”
In the District, where renters already face steep housing costs and aggressive move-in fees, the report raises additional concerns because D.C. law provides specific protections governing security deposits. Under District law, landlords generally cannot charge more than one month’s rent as a security deposit and must return deposits within 45 days or provide written notice explaining any deductions. Landlords also must provide itemized statements and pay interest on qualifying deposits. D.C. Tenant Security Deposit Information
The NCLC report argues that many security deposit alternative products are designed specifically to avoid those protections.
Instead of paying a refundable deposit directly to a landlord, tenants often pay monthly or annual fees to third-party companies offering “deposit-free” leasing programs. Researchers identified multiple companies operating in the market, including Rhino, Jetty, LeaseLock, Obligo, TheGuarantors, and others.
Unlike traditional deposits, the fees are usually nonrefundable even if the tenant leaves the apartment without causing damage. In many cases, the companies can still pursue tenants for damages or unpaid rent after already collecting years of fees.
“Security deposit alternative products make it more expensive to be a renter,” noted Steve Sharpe, senior attorney at the National Consumer Law Center. “People pay and pay, but at the end of the lease none of the fees are refunded unlike a traditional security deposit. On top of that, they can face debt collection to reimburse the PropTech company or even have money removed from their bank account based on the landlord’s damage claims.”
Researchers documented complaints from tenants who said companies withdrew money directly from their accounts after landlords filed claims, sometimes causing overdraft fees.
One tenant quoted in the report said: “My apartment complex messed up the final charge for the move out. Now [Obligo] is trying to charge me. … I have spent $150 in bank overdraft fees because of this.”
Another tenant reported paying hundreds of dollars in monthly fees only to still face large move-out bills. “I lived [at the property] for [two] years and paid over $400 in fees only to get charged my full deposit anyway,” the tenant said.
Black and Latino Renters Disproportionately Cost-Burdened
The report also warns that households of color are more likely to suffer the consequences of these products because Black and Latino renters are already disproportionately burdened by housing costs and discriminatory tenant screening systems.
According to data cited from Harvard University’s Joint Center for Housing Studies, 57% of Black renters and 54% of Hispanic renters are considered cost-burdened, meaning they spend more than 30% of their income on rent and utilities.
Researchers also raised concerns about “differential pricing,” where companies use credit scores, banking history, and proprietary algorithms to determine what tenants pay for these products. The report warns that those systems can deepen racial disparities because Black households historically face lower credit scores and lower accumulated wealth due to decades of discriminatory practices.
The authors of the report have urged state and local governments to strengthen oversight of the industry, require landlords to continue accepting traditional security deposits, and crack down on what researchers described as abusive practices by landlords and security deposit alternative companies.
“State and local governments should take steps now to address unaffordable upfront rental housing costs, including junk fees, and to rein in these harmful products,” reported Ariel Nelson, senior attorney at NCLC. “Local governments can increase access to traditional security deposits, increase enforcement of existing laws, and prohibit abusive practices by landlords and security deposit alternative companies.”
