New Law Requires Some California Landlords to Report Rent Payments to Credit Agencies

Groundbreaking California Legislation, SB 1157, looks to assist low-income renters with rent reporting to credit bureaus. 

While the majority of California landlords were entrenched in the COVID-19 crisis of 2020 and the ensuing moratorium on evictions, California Governor Gavin Newsome signed California Senate Bill 1157 into law, requiring large landlords of government-subsidized housing to offer tenants low-cost credit reporting of rent payments.

What is California SB 1157?

The bill, authored by Senator Steven Bradford (D-Gardena), is intended to assist low-income renters in establishing a credit history by requiring landlords of medium to large multi-family housing units to give their tenants the option of reporting rent payments to a major credit bureau.

“This bill, the first of its kind in the nation, starts to correct the longstanding inequity where those with the least resources have to fight the hardest to establish and improve their credit scores,” said Senator Bradford. 

“Having a good credit score is the first step in helping renters achieve the American dream of homeownership. But, most renters today do not receive a benefit to their credit scores when they consistently pay their rent on time. SB 1157 changes that for some of our most at-risk tenants. Renters and working families have suffered because of COVID-19, and this bill will provide an opportunity for families to responsibly build their credit after this crisis.”

SB 1157 enables low-income families to build their credit without taking on additional debt. While renters could see some negative consequences if they miss rent payments, the benefits of reporting rent payments outweigh the downsides. 

What does SB 1157 mean for Landlords?

SB 1157 will require landlords managing assisted housing developments with more than 15 units to report rent to a nationally reporting credit bureau. Assisted housing is defined as a multi-family rental housing development that receives governmental assistance. 

Landlords with fewer than 15 units are exempt from rent reporting unless both of the following apply:

• They own more than one assisted housing development, regardless of the number of units.
• They are a corporation, an LLC with at least one corporate member, or a real estate investment trust as defined by Section 856 of the U.S. Code. 

When does it go into effect?

Lease agreements signed after July 1, 2021, must include the offer to report rent payments. For leases already in effect, the offer of rent reporting must be issued by October 1, 2021. 

The offer of rent reporting should include the following:

• A statement that reporting of the tenant’s rental payment information is optional.
• Identification of each consumer-reporting agency to which rental payment information will be reported.
• A statement that all of the tenant’s rental payments will be reported, regardless of whether the payments are timely, late, or missed.
• The amount of any fee charged.
• Instructions on how to submit the written election of rent reporting to the landlord by mail.
• A statement that the tenant may opt in to rent reporting at any time following the initial offer by the landlord.
• A statement that the tenant may elect to stop rent credit reporting at any time but that they will not be able to resume rent reporting for at least six months after their election to opt-out.
• Instructions on how to opt-out of reporting rental payment information.
• A signature block that the tenant shall date and sign to accept the offer of rent reporting

When the offer of rent credit reporting is made, the landlord shall provide the tenant with a self-addressed, stamped envelope to return the written election of rent reporting.

SB 1157 is in effect until July 1, 2025, and allows landlords to report FICO 9, FICO 10, and VantageScore 3.0 and 4.0 credit scores. 

Cost to Landlords and Tenants

If a renter opts into rent reporting, landlords can charge the lesser of $10 a month or the actual cost to report the rent payment.

If the renter fails to pay the rent reporting fee, the landlord cannot use it as a reason to terminate the tenancy and cannot deduct the unpaid fee from the security deposit. If the fee remains unpaid for more than 30 days, the landlord can stop reporting the rent payments. The tenant will not qualify for rent reporting for a minimum of six months from the date that the fee was due. 

Tenants invoking their right to repair and deduct or withhold rent under California Civil Code sections 1941 and 1942 must notify the landlord of the deduction or withholding before the rent due date. Withheld or deducted rent payments under these provisions do not constitute a late rental payment. 

If the renter chooses to stop the reporting at any time during the lease, they may do so by submitting a written request to their landlord. The renter would be ineligible to qualify for rent payment reporting for no less than six months after their request to stop rent payment reporting. 

Rent Reporting with PayRent

Landlords who collect rent online with PayRent can take advantage of built-in credit reporting to all three major credit reporting agencies: Transunion, Experian, and Equifax. There is no additional cost for rent reporting for landlords or tenants. Because the renter’s “full file” of payments are reported (both the good and bad), they are incentivized to consistently pay rent on time, leading to a more steady cash flow for landlords. Aside from more consistent payments, many landlords elect to report rent payments as an amenity for their tenants.