Lets do an Overview of AB 2493, the new law affecting Landlords in CA. It affects application fees.
Assembly Bill 2493 is a California law that took effect on January 1, 2025, amending California Civil Code §1950.6 to regulate how landlords handle rental application screening fees and tenant screening processes. The law aims to increase transparency and fairness in the rental application process by addressing concerns about excessive or unclear application fees, particularly in California’s competitive housing market. It imposes stricter rules on when and how landlords can charge application fees, how applications must be processed, and what disclosures or refunds are required.
Who Passed It and Why?
Authored by: Assemblywoman Gail Pellerin (D-Santa Cruz).
Purpose: The law was passed to address tenant complaints about paying multiple application fees without clear criteria for approval, often spending hundreds or thousands of dollars without securing a rental. It seeks to prevent landlords from collecting fees when no unit is available or from arbitrarily selecting tenants, which could lead to discriminatory practices. The legislation promotes fairness by ensuring fees are tied to actual screening costs, applicants are processed transparently, and tenants aren’t financially burdened by non-refunded fees for units they don’t get.
Key Provisions of AB 2493
Landlords in California now have two options for handling rental application fees and screening processes:
Option 1: First Come, First Qualified, First Approved
Process: Landlords must process applications in the order they are received and approve the first applicant who meets the landlord’s documented screening criteria (e.g., credit score, income, rental history).
Requirements:
Landlords must provide written rental criteria (e.g., minimum credit score, income thresholds) alongside the application form to ensure transparency.
Applications can only be charged a fee if a rental unit is available or will be available within a reasonable time. Charging fees for waitlists or unavailable units is prohibited unless the applicant consents in writing.
If an applicant is rejected for not meeting the criteria, the landlord is not required to refund the application fee, provided the fee covers actual screening costs (e.g., credit or background checks).
Landlords must provide a copy of the applicant’s consumer credit report within 7 days of receiving it (via personal delivery, mail, or email) or within 3 days if requested by the applicant.
Fee Details: The fee must be reasonable and tied to actual costs (e.g., credit checks, background checks). The maximum allowable fee is $62.02 per applicant (adjusted annually based on the Consumer Price Index). If no credit or reference checks are performed, any unused portion of the fee must be refunded.
Option 2: Flexible Screening with Refunds
Process: Landlords can maintain their existing screening process (e.g., selecting the “strongest” applicant) but must refund the entire application fee to any applicant not selected for tenancy, regardless of the reason.
Refund Timeline: Refunds must be issued within 7 days of selecting a tenant or 30 days of receiving the fee, whichever comes first.
Requirements: Similar to Option 1, landlords must provide written rental criteria and ensure fees are tied to actual costs. Credit reports must also be provided to applicants within the specified timelines.
Additional Rules:
Landlords cannot charge application fees for units that are not available or won’t be available soon, unless the applicant agrees in writing to pay despite no vacancy.
Applicants can submit reusable tenant screening reports, which landlords must accept, potentially reducing costs for tenants applying to multiple properties.
Landlords must provide an itemized receipt detailing what the application fee covers (e.g., credit check, background check).
Noncompliance can lead to penalties, legal disputes, or fair housing violation claims.
Impact on Small Landlords
For small landlords who historically collected a modest application fee (e.g., $30-$50) to gauge applicant commitment and cover legitimate screening costs, AB 2493 introduces significant changes that affect their processes and potential liabilities. Here’s how it impacts them:
Changes to Screening Practices:
First-Come, First-Qualified Requirement (Option 1): Small landlords who relied on collecting fees from multiple applicants to select the “best” candidate can no longer do so without adopting a first-come, first-qualified process. This means approving the first applicant who meets the predefined criteria, which must be documented and shared upfront. This could limit flexibility, as landlords can’t hold out for a “better” applicant, potentially leading to faster approvals but less control over tenant selection.
Administrative Burden: Small landlords, often managing properties without professional support, must now maintain detailed records (e.g., application timestamps, rental criteria, fee receipts, credit report delivery) for at least three years to avoid disputes or penalties. This adds paperwork and complexity to what was once a simple process.
Credit Report Delivery: The requirement to provide credit reports within 7 days (or 3 days upon request) adds a new step. If using third-party services like Zillow or RentSpree, landlords must ensure applicants can access reports directly or receive them from the landlord, which may require additional coordination.
Financial Implications:
Option 1 (Non-Refundable Fees): If landlords choose the first-come, first-qualified approach, they can retain fees for rejected applicants as long as the fees cover actual screening costs (e.g., payments to a screening service like TransUnion SmartMove). This aligns with past practices where fees were used to cover legitimate costs, so small landlords may not face significant financial changes here, provided they comply with disclosure and credit report requirements.
Option 2 (Refundable Fees): If landlords opt for flexible screening, they must refund the entire fee to unselected applicants, even if screening costs were incurred. For small landlords, this could be financially burdensome, especially if they process multiple applications and pay for credit or background checks for each. For example, if a landlord pays $45 per applicant to a screening service and rejects several applicants, they must refund the full fee (e.g., $45) to each, absorbing the cost themselves. This could discourage small landlords from collecting fees altogether.
Unused Fee Refunds: Even under Option 1, if a landlord collects a fee but does not perform a credit or reference check (e.g., because the first applicant is approved quickly), any unused portion of the fee must be refunded. This introduces a new accounting burden for small landlords who previously treated fees as flat, non-refundable amounts.
Liability Risks:
Refunding Fees Collected in Good Faith: For small landlords who collected fees in good faith to cover screening costs, AB 2493 creates potential liability under Option 2, where all fees for unselected applicants must be refunded, regardless of whether costs were incurred. For example, if a landlord charges $50, pays $45 for a screening report, and rejects the applicant, they must refund the full $50 under Option 2, potentially losing money. This could create financial strain for small landlords with tight budgets.
Noncompliance Penalties: Failure to provide written criteria, deliver credit reports, or issue refunds within the required timelines (7 or 30 days) could lead to legal disputes or penalties. Small landlords may face lawsuits or fair housing complaints if they inadvertently violate the law’s transparency or processing rules, especially if they lack robust documentation.
Third-Party Services: Many small landlords use platforms like Zillow or RentSpree, where applicants pay fees directly to the service. AB 2493’s requirements for providing credit reports and receipts may still apply to landlords, even if they don’t directly collect fees. The law is unclear on how third-party services handle refunds, potentially leaving landlords responsible for ensuring compliance or refunding fees they didn’t directly collect.
Practical Considerations:
Shift to Option 1: Many landlords, including small ones, are reportedly choosing Option 1 (first-come, first-qualified) because it allows them to retain fees for rejected applicants and reduces vacancy time by incentivizing quick applications. However, this may force small landlords to accept tenants who meet minimum criteria but aren’t their preferred choice, potentially increasing risk if the tenant later proves problematic.
Eliminating Fees: Some small landlords may stop charging application fees entirely to avoid the administrative hassle and refund obligations. This could increase their financial burden, as they’d need to cover screening costs out of pocket, which may be challenging for those managing just a few units.
Increased Costs and Time: The need to document criteria, provide receipts, and deliver credit reports adds time and potential costs. Small landlords without property management software or legal support may find compliance particularly challenging.
Recommendations for Small Landlords
To navigate AB 2493 effectively, small landlords should consider the following steps:
Choose Option 1 (First-Come, First-Qualified): This is often the better choice for small landlords, as it allows retaining fees for rejected applicants and aligns with past practices of covering screening costs. Ensure clear, written rental criteria are provided to avoid accusations of discrimination.
Update Processes: Revise application forms to include written screening criteria and provide itemized receipts for fees. Use reliable screening services that provide credit reports directly to applicants to streamline compliance.
Document Everything: Keep records of application timestamps, criteria disclosures, fee receipts, and credit report deliveries for at least three years to protect against disputes.
Consider Eliminating Fees: If the administrative burden or refund risks are too high, consider not charging application fees and covering screening costs yourself, though this may strain finances for small operations.
Use Third-Party Services Wisely: If using platforms like Zillow or RentSpree, confirm they provide applicants with credit reports and receipts that meet AB 2493 requirements. Clarify whether you, as the landlord, are responsible for refunds if the platform collects fees.
Seek Legal Advice: Consult a real estate attorney to ensure compliance, especially if managing multiple applications or using third-party services. Local landlord associations can also provide guidance.
The politician obviouly thinks that landlords need to suck up yet more costs. Do we have more options?
Conclusion
AB 2493, authored by Assemblywoman Gail Pellerin, addresses tenant concerns about excessive application fees and opaque screening processes by mandating transparency, structured processing, and refund options. For small landlords who relied on modest application fees to cover legitimate screening costs, the law introduces new administrative and financial challenges. Option 1 (first-come, first-qualified) is likely the most practical choice, as it avoids refund obligations for rejected applicants, but it limits flexibility in tenant selection. Option 2 (flexible screening with refunds) could create liability for refunds even after incurring screening costs, potentially costing landlords money. To stay compliant, small landlords must update their processes, document thoroughly, and consider whether collecting fees remains viable. Consulting with legal professionals or property management experts can help navigate these changes effectively.
If you’d like, I can assist in the management of your apartment building and help you safely navigate these troubled waters for you.
Keith Lambert, Property Manager
310-437-0677
https://www.lambertinc.com/property-management/
