There’s been a little bit of buzz lately around third party rent payment services, especially across social media. So, what exactly are these services, and are they a good idea?
Third party rent payment (3PRP) services are services that will take money out of your bank account and put it in your rent account at the real estate agency. Many of you are probably familiar with these services – I know I’ve used them myself in quite a few of the rentals I’ve lived in. These services can be helpful for some renters, for a variety of reasons, but we know there are significant drawbacks.
Third party rent payment services can be helpful if you are financially stable but tend to be forgetful - though not necessarily more helpful than setting up a direct deposit. You don’t have to bother making each rent payment as it falls due, it just happens for you. This can prevent you from accidentally falling into rental arrears because you’ve simply forgotten to pay rent, and can also lessen the hassle for agents. Some of these services also provide other benefits like reward points which can be used at various shops. However as Scott Pape pointed out in his article that started the recent discussion, it would take 69 years of renting to be able to buy a shaver with one rewards system. We took a look and 1 year of points was worth between $3.50 and $7 depending on what you were buying - or $8.62 for a donation to charity.
These services charge fees: regular fees for using the service at all, and default fees. If the service tries to pay rent from your bank account, but your account doesn’t have enough money in it, you will be hit with a default fee – and these default fees can be significant! More broadly, there's clearly a problem with a system where renters have to pay even more of their own money, just to pay rent.
What does the law say about these services?
Section 35 of the Residential Tenancies Act 2010 (NSW) says:
"A landlord, or landlord’s agent must permit a tenant to pay the rent by at least one means for which the tenant does not incur a cost (other than bank fees or other account fees usually payable for the tenant’s transactions) and that is reasonably available to the tenant."
In 2010, during the second reading speech in the Legislative Assembly, former Minister for Fair Trading, Virginia Judge said:
"[the new Act will] ensure tenants are given at least one free and easy option to pay their rent rather than being charged an extra fee for the privilege.
. . . Section 35 will require tenants to be given at least one free and easy option to pay their rent in response to the increasing use of third party rent collection agencies imposing fees on top of the rent. This is becoming a major concern for many tenants who are often given no choice but to pay by a method that incurs the extra fee."
That seems pretty clear cut to us - if the only option an agent presents to you to pay your rent is through a 3PRPS and therefore not free, that’s unlawful. We’ve heard complaints from tenants that they were given no choice in agreeing to use a 3PRPS, or were only offered impractical choices in addition to the 3PRPS “option”.
Cash and cheque “options”
Things get legally a little less clear cut where real estate agents do offer a free way to pay rent in addition to the 3PRPS, but that option is deeply impractical, such as cash or cheque. While these are technically free, for many renters they are not reasonably available.
For starters - cheques? Who even has a chequing account? According to the Australian Payments Network, only 5% of people still do. And though the Act suggests that bank fees 'usually payable for the tenants' transactions' don't count, if rent is the only thing you pay for by cheque the fees involved aren't usual, and they can be hefty. For example, at the Commonwealth Bank you can generally still order a cheque book for free for most personal accounts, but you'll be charged $3.00 for each and every cheque you write. Many banks don't even offer cheques for all personal accounts.
And cash? In this day and age, having to physically visit your real estate agent’s office on a regular basis to pay rent in cash, for many people, feels a little absurd. For some renters, this is pretty much impossible (what if you live in the Blue Mountains, and your real estate agent’s office is in the Sydney CBD?!). For others, this travel may itself incur costs, or at the very least is a waste of the renter’s time.
By putting the cash and cheque options (which they are generally confident very few people will take up!) on the table, agents can skirt around the edges of the law and effectively force people to use 3PRPS.
While in general we don’t like the idea that renters are being forced to pay a fee just to pay rent, the issue of most concern to us is the default fees that many of these services impose. We have assisted with a matter where a renter was owing more money in default fees than an entire week’s worth of his rent. This had happened to him because his pension money was paid into his bank account on the day after the 3PRPS sought the transfer, and this had gone on week after week. Each time his account had insufficient funds, he was hit with yet another default fee.
With this type of service, the renters who can least afford it end up being the ones charged the most in default fees. These fees are taking money that otherwise could be going towards the rental account, putting many renters into rent arrears or otherwise going without other necessities in order to pay rent. It is in the interests of both the landlord and the renter that the rent be paid – the default fees that 3PRPS charge go against both parties’ interests!
What if your landlord wants you to sign up to a rent payment service?
If your real estate agent is pressuring you to use a 3PRPS, you could try reminding them that they are legally obliged to provide you with a free way to pay your rent that is 'reasonably available to the tenant'. If that doesn't work, you could reach out to a Tenants' Advice and Advocacy Service for assistance to potentially make a complaint against your agent.
Real estate agents have explained to the media that the reason they like the services is that it reduces their workload - they don't have to spend time working out which payment is coming from who. This means at those fees are really about transferring business costs from either the landlord or the agent to the tenant. One of the largest 3PRP services says that it is the agency's choice whether to pass the cost along to the tenant or not - we aren't aware of any agencies who have chosen not to. This is an obvious result while the law is unclear and the power is imbalanced.
More broadly, we think it's high time for some legislative changes to specify and tighten up what counts as a fee free way to pay the rent, and the types and rates of fees that 3PRPS are allowed to charge - and make clear that as the agency is the beneficiary through more efficient operations, they should bear the regular costs of maintaining the service. Another measure that may be effective is the introduction of a cooling-off period following signing up to a 3PRPS, during which a renter can opt out of the service with no penalty.
But we know that in the private rental market the deck is stacked against renters in so many ways. Renters have little power compared to agents and landlords . This means that even those renters who would like to challenge the agents pushing them to use 3PRPS are generally unwilling to do so. As long as agents and landlords are able to end tenancies and evict without providing any reason ('no grounds'), renters who make a fuss about anything can face being kicked out of their home. So, declining to use the agency’s designated 3PRPS may lose a renter their tenancy. In such a competitive rental market, which sees relatively powerless renters forced to compete with one another to secure a home, many renters will put up with things that they don’t want to do, such as paying fees in order to pay rent. Whatever might be usefully thrown at this problem - be that regulation of charges, or a 'cooling period' - until the underlying issues of lack of security and appropriate, affordable homes are actually acknowledged and addressed, many renters just won’t feel they have the power to challenge these kinds of unfair arrangements.