Does Baltimore’s security deposit alternatives bill offer ‘freedom’ or carve away renter protections?

In early April, the Baltimore City Council passed a bill requiring some landlords to offer security deposit alternatives, and the bill has been sent to Mayor Brandon Scott’s desk for consideration. One aspect of the bill, allowing renters to pay their security deposit over installments rather than in a lump sum, is widely supported by advocates. But the other, requiring landlords to offer tenants the option to purchase “security deposit insurance,” is drawing scrutiny.

The problem: security deposit insurance is neither a security deposit, nor is it insurance — and renter advocates say it opens the door for companies to prey on the city’s most vulnerable tenants.

“It’s predatory, and it’s misleading,” said Carol Ott, Tenant Advocacy Director for the Fair Housing Action Center of Maryland.

Proponents of the bill say it offers renters “freedom.” But tenant advocates say Rhino, the primary company that pushed for the bill in Baltimore that offers security deposit “insurance,” has business practices that mislead tenants, saddle them with unexpected charges, and remove the protections ordinarily in place when a landlord withholds a security deposit.

“They’re not giving people a choice,” Ott said. “They’re forcing poor people into an option that they may or may not actually want, but out of desperation they may take it.”

What “security deposit insurance” actually is

Rhino markets its product as “security deposit insurance,” but legally it’s actually a surety bond — a three-way agreement in which the company guarantees to one party that the other will fulfill their obligations. In this case, Rhino guarantees the renter will fulfill their obligation to the landlord.

It works like this: The renter purchases a policy from Rhino and pays a premium, most often in the form of a monthly payment. Unlike a security deposit, this premium is non-refundable. The renter won’t see it again. A Rhino official said in an email that the average security deposit in Baltimore is $1,000 and that a Rhino policy covering that amount would typically cost around $5 per month or $60 per year.

The landlord can then make a claim through Rhino to be refunded for damages or unpaid rent. If it accepts the claim, Rhino pays the landlord, then goes to the tenant to be refunded — unlike an insurance policy, tenants are responsible for the entire cost.

The model has obvious benefits to renters at the start, giving them the option to pay a low fee instead of a large security deposit upfront. But because the fee isn’t refunded, renters pay for the privilege of holding onto the rest of that money; and if the landlord makes a claim, they can end up paying the full amount anyway (plus the fee).

The benefits and the pitfalls

Proponents in Baltimore and elsewhere say “security deposit insurance” is a step toward housing affordability, an alternative for people who can’t scrape together hundreds or even thousands of dollars for a security deposit.

“Many of the people who will benefit from this legislation are seniors and Black and Latina women raising children,” councilmember Sharon Green Middleton, the Baltimore bill’s primary sponsor, wrote on her Facebook page. “The bill is about getting them unstuck, into homes of their own and out of dangerous, substandard rentals. It is about equity and confronting homelessness in a city where 70% of our neighbors without housing are Black.”

Surety bonds have been available as a security deposit alternative since at least 2000 and have been legal in Maryland since 2006. A new wave of “insurtech” companies including Rhino began launching around 2014.

Just in the last year, bills allowing or promoting surety bonds as security deposit alternatives have been popping up in cities including Cincinnati and Atlanta, many of them in relation to a nationwide policy push by Rhino. In December, the mayors of Los Angeles and Miami wrote an op-ed with Rhino cofounder Ankur Jain calling it a “stimulus plan” to “unlock” money “trapped in security deposits across the US.”

But some say that marketing is deceptive. A Shelterforce article outlines the two primary concerns tenant advocates have with this type of product.

The first concern: Calling it “insurance” implies that the company will offer coverage for tenants if the landlord makes a damage claim. It will not; tenants are still responsible for the full cost of damages. Ott said tenants who don’t have the resources to read the legalese in a contract or seek the advice of a lawyer are likely to end up stuck with bills they don’t expect.

“How many of us actually read the fine print?” Ott said, adding that “tenants who don’t have the wherewithal or the resources to go through some sort of contract vetting process, they’re the ones who are being preyed on.”

The second concern: private companies don’t have the same protections that tenants can get in court when disputing a landlord’s withholding of a security deposit.

Instead of allowing tenants to sue for their money back, companies like Rhino make renters sign arbitration agreements, and arbitration can’t be appealed in most cases. Shelterforce reported on stories of renters who said they were charged by Rhino because their landlords claimed to make repairs they didn’t make, or charged for damages the renters weren’t responsible for such as normal wear and tear. One couple quoted in Shelterforce said after they disputed a claim, Rhino decided in favor of the landlord, then closed the case and stopped responding.

Martha Dreiling, Rhino’s senior vice president for operations, said in an emailed statement that Rhino has safeguards in place to protect renters, and offers them the opportunity to contest a landlord’s claims.

“Rhino has a thorough process for reviewing the veracity of any claim that a landlord submits and the renter is immediately given the opportunity to offer contrary evidence to dispute the claim,” Dreiling said, saying that Rhino acts as the “intermediary” between the landlord and tenant in the event of a claim dispute.

Other protections Dreiling detailed: “Rhino does not charge interest or fees on damage claims, which can exacerbate the total amount owed significantly, works with renters on a monthly installment plan to lessen the burden of damage claims, and does not report damage claims to credit agencies.” (A note here: to sign up with Rhino, renters must sign a document acknowledging that failure to pay the company could impact their credit score.)

Dreiling says the “vast majority” of renters don’t face damage claims, but that the “vast majority” of claims that are filed are not disputed.

The bill’s sponsors say Rhino has incentives to avoid paying out illegal claims to landlords, and potentially offers more protection than a renter going up against a landlord in court.

“A lot has been said about concerns over a lack of protection,” said Council President Nick Mosby, one of the bill’s cosponsors, in a statement. “First, right now, particularly in my community, when you put down a security deposit, many families know they are never going to see that money again. The landlord comes with this issue or that issue, and there is no protection unless you go out and hire an attorney for the same $1,200 as the security deposit, which is not worth it. So, you forego the money and you move on.”

“This bill provides alternatives,” Mosby continued. “If you decide to get a surety bond, then you are protected by state regulations that govern the insurance industry.”

“The incentive [to keep claims in check] is to not run afoul of state and federal law by filing fraudulent claims,” Middleton, the bill’s primary sponsor, said in an email. “Our residents’ interests are also backed by longstanding consumer protections provided through the oversight of the Maryland Insurance Administration and other regulatory bodies. The City Council will continue to be on the lookout for our residents’ best interests and respond legislatively if a need arises.”

For housing equity or for profit?

Baltimore’s security deposit alternatives bill passed 12-2 on April 5, with one abstention. Mayor Brandon Scott’s office did not immediately respond to a question about whether he plans to sign the bill.

Other than Middleton and Mosby, none of the council members who voted for the bill responded to an email Tuesday asking about the criticisms.

Ryan Dorsey, one of the two council members who voted against the bill, said Baltimore landlords have had the option to offer alternatives like Rhino for years; this bill doesn’t legalize a product that wasn’t previously legal. Instead, he said, it promotes it.

“It’s transparently a co-option of progressive values and progressive language for the purpose of advancing a venture capital aim from literally a single company,” Dorsey said. He pointed out that the language of the bill specifically requires criteria that fit Rhino’s model, excluding companies that offer other kinds of security deposit alternatives.

Dreiling, the Rhino VP, disputes the idea that the bill endorses Rhino exclusively.

“It is important to note that the legislation doesn’t specify that only solutions like Rhino’s are allowed,” Dreiling wrote in an email. “There are various types of alternatives to security deposits and this legislation encourages those.”

Despite language calling surety bonds a housing affordability solution, Dorsey isn’t aware of any housing advocates in Baltimore who support the bill. A piece from WYPR quoted critics of the legislation from the Maryland Consumer Rights Coalition and Baltimore Renters United.

But Middleton argues that the bill is about giving renters a choice.

“As elected officials, we have an obligation to provide continuing oversight and create policies that protect our communities but we should never indulge the misguided notion that we know better than residents when it comes to managing their own money,” Middleton said.

Ott, with the Fair Housing Action Center, said for the poorest residents who are least able to afford a security deposit, an option to sign up with Rhino isn’t really a choice.

“It’s marketed as choice and freedom,” Ott said. “Yet underneath is a lot of fine print in a contract that if you’re desperate, are you really going to read? No, you’re not.”