California’s Senate Bill 1157 went into effect July 1, 2021, and requires operators of subsidized multifamily units in the state of California to provide the option for tenants to have their rent payments reported to a major credit bureau. This bill helps lower-income renters build their credit history without having to open a new line of credit.
Many renters have low credit scores due to reasons out of their control or temporary situations. Having a renter with a strong credit score is something many landlords look for during the tenant screening process. Set to last until July 1, 2025, this Senate bill is one of the first in the United States that focuses on using rent payments to aid lower-income individuals and families in improving their credit scores. Keep reading to learn everything you need to know about the new rental law as a landlord or a renter.
What is Rental Law SB 1157?
As mentioned above, SB 1157 was created to help lower-income renters build their credit scores by requiring landlords of subsidized housing to give tenants the choice of reporting their rent payments to a major credit bureau. This bill does not apply to landlords or operators of assisted housing communities or those with 15 or fewer properties (unless the landlord owns more than one property and is an LLC or other corporate structure – read more on exemptions below).
A U.S. Census American Community Survey reported around 45% of Californians are renters, and before SB 1157, landlords were not required in California to give renters the option to report their rent payments. Often renters go through a third-party service themselves to report payments to aid their credit scores.
In a press release, the author of the bill, Senator Steven Bradford, said, “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. 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.”
With lingering economic hardship from the pandemic and widening income inequality in the U.S., SB 1157 will help families responsibly and legitimately build their credit. Additionally, by focusing on subsidized housing, it will help renters who may need it.
How California’s SB 1157 Works
SB 1157 requires landlords and property operators of medium-to-large, subsidized, and multifamily properties to give all renters the choice of having their rent payments reported to a credit agency. It’s important to note that subsidized housing refers to landlords of properties that receive federal, state, or local subsidies. Read the full bill, here.
Landlords with less than 16 units are exempt from this bill unless both of the following apply:
- The landlord owns more than one assisted housing development, regardless of the number of units in the property.
- The landlord is either a real estate investment trust, which is defined by Section 856 of Title 26 of the United States Code, or the landlord is a corporation or a limited liability company (LLC) where at least one of its members is a corporation.
Landlords who do qualify for the requirements will have to include a written election of rent reporting to offer tenants that includes:
- A statement that the reporting of a tenant’s rent payments is optional
- Identification of the consumer reporting agency the rent payment information will be reported to
- A statement that, if they opt-in, all of the tenant’s rent payments will be reported, regardless of if they are timely, late, or missed
- The amount of any fee charged for the reporting
- Instructions on how to submit the written election to the landlord through mail
- A statement saying the tenant can opt into rent reporting at any time
- A statement saying the tenant can choose to stop rent reporting at any time, but that they will not be able to start rent reporting until six months after their decision to opt-out
- Clear instructions on how renters can opt-out of reporting rental payment information
- A signature section where the tenant will date and sign to accept the offer
If a tenant opts into having their rent payments reported, landlords can require renters to pay the lesser of either the actual cost to the landlord to report the payments or $10 a month. It’s important to note the tenant paying (or not paying) this fee will not be included in reporting to the credit bureau. To meet the requirements of SB 1157, landlords should notify their renter at the time of the lease agreement; to easily do this, you can start your customizable state-specific lease agreement right in your TurboTenant account.
What This Means for Landlords and Renters
This law provides great opportunities for both landlords and renters. More specifically for renters, SB 1157 is one of the first laws that allows renters to build their credit history through their rent payments. With this rental law focused on subsidized housing, it will reach lower-income renters who historically have more difficulty and fewer opportunities to establish good credit.
For landlords, SB 1157 is a motivating factor for most renters to ensure they pay their rent on time to boost their credit score. Having on-time rent payments is essential for a landlord’s return on their property investment, and an incentive like SB 1157 is a win-win for both parties.
California SB 1157 FAQ
Is reporting rent optional for renters?
Under SB 1157, rent reporting is optional for renters. When presented with the written election from landlords, renters will sign and date the offer if they choose to accept. Renters can accept the rent reporting offer at any time after they receive the offer and can request and obtain copies of the written election from the landlord. Furthermore, a tenant can opt-out of rent reporting at any time, however, they will not be able to resume rent reporting for at least six months after they chose to opt-out.
Will missed rent payments be reported to credit bureaus?
If a renter has opted into rent reporting, all rent payments will be reported to the credit bureaus which includes on-time, missed, or late payments.
How long is SB 1157 bill set to last?
SB 1157 came into effect on July 1, 2021, and is scheduled to sunset on July 1, 2025; it may be renewed in the future.
Do any other states require rent reporting to credit bureaus?
Reporting rent payments to a credit bureau is an option for tenants throughout the U.S. However, there are no other rent reporting laws such as California’s SB 1157.
TurboTenant, Inc does not provide legal advice. This material has been prepared for informational purposes only. All users are advised to check all applicable local, state and federal laws, and consult legal counsel should questions arise.