UPDATE: Governor Greg Abbott signed Senate Bill 1414 into law on June 10. It is effective September 1.
In July 2014, Cathi and Tara Cleven signed a one-year lease and moved into an apartment at Colonial Grand at Canyon Creek, a sprawling, shady complex in northwest Austin owned by Mid-America Apartments. Like most leases, their agreement specified penalties for late payment of rent: After the third day of the month, they’d owe an initial late fee of $75, plus a daily late charge of $15 for up to 15 days.
On May 4, 2015, the Clevens paid their rent and were charged the $75 late fee, which they paid. In July, they were charged again for a late rent payment: $120, which included the $75 initial late fee and three additional daily fees of $15.
The Clevens are plaintiffs in a class action lawsuit filed in federal court in 2016 that alleges the late fees they and other Mid-America Apartments tenants were charged and paid were arbitrary and illegal. The case is one of six class action lawsuits that have been filed since 2016 against large apartment operators in Texas for charging “unreasonable” late fees. Now, at least in part because of those lawsuits, the Texas Apartment Association, a trade group for the rental housing industry that donated more than $450,000 to Texas lawmakers in the 2018 campaign cycle, is trying to change the law to allow landlords to charge some of the highest late fees in the country.
According to a state law updated by the Legislature in 2007, a landlord can charge tenants a late fee only if that fee is “a reasonable estimate of uncertain damages to the landlord that are incapable of precise calculation and result from the late payment of rent.” Lobbyist David Mintz testified on behalf of the Texas Apartment Association in 2007 that the updated statute would curb “some of the true abuses we’ve seen with some rental property owners and, I think just as importantly, [do] it in a way that is balanced and fair and within good, reasonable business practices.”
Today Mintz is the vice president of government affairs for the trade group, which is seeking to again change the law “to address the lack of clarity in the current statute and to provide more certainty to both landlords and tenants,” Mintz wrote in an email to the Observer. While landlords can charge a late fee that is a “reasonable estimate” of damages, he wrote, “reasonable is not defined and exactly what can be charged is not spelled out. This ambiguity is confusing and is exposing property owners to costly, unnecessary lawsuits.”
Senate Bill 1414, by state Senator Kelly Hancock, a Dallas-area Republican who accepted $10,000 from the Texas Apartment Association in 2018, would remove the requirement that late fees must be in proportion to a landlord’s damages. Instead, landlords could charge up to 10 percent of a tenant’s monthly rent for apartments and 12 percent for single-family homes without any justification for the fee — or threat of a lawsuit. A landlord could still charge late fees exceeding 10 percent but would have to demonstrate that the fee is “reasonable” and related to damages incurred due to late payment of rent.
The change would affect the roughly 3.5 million Texans who rent their homes. Of those renters, 843,000 are extremely low-income and more than 620,000 spend more than half their household income on rent, according to the National Low Income Housing Coalition. Low-income renters are disproportionately affected by late fees, said Charlie Duncan, the advocacy director at Texas Housers, an affordable housing nonprofit. “We could very well see a lot more tenants who, if they fall behind one time, they get assessed unreasonable late fees, they can’t pay and they get evicted.”
Advocates for renters dispute the notion that landlords incur any damages due to late payment of rent. “The reality for most landlords when rent is paid late is they have someone on staff walk across the parking lot to put a note on the door saying your rent is late and here’s your notice to vacate,” said Sandy Rollins, the director of Texas Tenants’ Union. “The cost is basically a piece of paper and the ink. It’s a racket. They can rack up a lot of extra money by charging these much higher rates.”
In fact, documents discovered in the lawsuit against Mid-America Apartments demonstrate that landlords often view late fees as a significant source of revenue rather than as compensation for damages. In 2013, the company merged with another large apartment operator called Colonial Properties. Before the merger, Mid-America Apartments charged tenants an initial late fee of $50. Colonial charged $75. Late one evening in 2013, a regional vice president for Mid-America Apartments wrote an email to his colleagues, asking if anyone objected to increasing their late fees to match those charged by Colonial. “Easy increase income opportunity! :)” he wrote. “Works for me!” replied one. “Me too!” wrote another.
“It literally got approved overnight,” said Britton Monts, a lawyer representing the Clevens and other families in three pending class action lawsuits against large apartment operators in Texas. “They didn’t tie it to their estimated damages and used it to bring in more money.” According to the case filing, “the late fees assessed by [Mid-America Apartments] have come to represent their largest source of ancillary (non-rent) income.” In Texas alone, the company collected more than $13 million in late fees between 2012 and 2017.
In 2018, a federal district judge ruled that the company had violated the law by charging arbitrary late fees. Rather than appeal the ruling, Mid-America Apartments is now appealing the court’s decision to certify the class action lawsuit. The company did not immediately respond to request for comment.
In April, SB 1414 passed the Senate on a 26-5 vote. On Tuesday, state Representative Trey Martinez Fischer, a San Antonio Democrat who chairs the House Business and Industry Committee, joined Republicans in advancing it past the committee. It now faces a deadline of May 21 to be tentatively approved by the full House, and would then need only Governor Greg Abbott’s signature to become law.
The proposal would make it harder for tenants to challenge unreasonable late fees in court. Under the bill, a landlord who violates the law would be liable for damages only after the late fee has been “collected,” rather than “charged.”
“That means a landlord faces no liability for charging an unreasonable fee until they have collected the amount, and the tenant has no grounds to challenge the unreasonable fee until they have paid,” Duncan said.
Under both current law and SB 1414, a landlord can apply rent payments to any outstanding debts without notifying the tenant at the time of payment. In practice, that means a $25 debt for maintenance or trash pickup can become $25 of unpaid rent, thus triggering the assessment of late fees, said Daniel Armendariz, a housing advocate with the Austin Tenants’ Council, a nonprofit that advocates for tenant rights and fair housing.
“I would say about 75 percent of the evictions I see are for nonpayment of rent, and at least 30 to 40 percent of those evictions are for nonpayment of rent because late fees were applied to rent,” he said. “The original cause is some sum owed. It doesn’t really matter how much or how little is owed. But once owed, the deadly cycle of late fees kicks in.”