As rental costs continue to rise, a growing number of companies are offering services that allow the monthly fee to be split, which may make it easier for some tenants to pay.
The companies say they are stepping into the breach where public policies for tenants don’t exist, but consumer advocates say the products are expensive at best and predatory at worst. And with no relief from the years-long housing affordability crisis, the tensions seem destined to continue.
According to the Harvard Joint Center for Housing Studies, nearly one-third of all American households rent, and half of them spend more than a third of their income on rent. For many tenants, paying rent all at once at the beginning of the month leaves them with no pay until their next paycheck.
“It basically comes down to a cash flow problem,” said Sameer Goyal, co-founder of Asusu, one of the companies providing the service. “It’s not that (tenants) don’t make money, it’s that the income they get and their expenses are basically in and out.”
In interviews, Esusu’s co-founder, Wemimo Abe, often mentions his mother, an immigrant who worked multiple jobs, including occasional work, as an example of the company’s target customer.
“It is not a discretionary spending product like a Gucci bag,” Goyal said. “It really focuses on the fact that one out of every two Americans has less than $400 in their bank account and it solves that problem.”
How does Buy Now, Pay Later work to pay rent?
Esusu offers what it calls “Split Pay” as part of a broader package of financial coaching-like services that is available with a subscription. In select cases, tenants can also choose to use a loan from Affirm, a fintech better known for its “buy now, pay later” offering.
Such services allow the tenant to apply for a loan for a portion of the upcoming month’s rent and repay it later. Each request must be underwritten separately, even if the tenant has already been approved. Borrowers cannot apply for a new loan until they have paid off the first loan, which prevents the debt from continuing to grow.
Asusu declined to share details about how it underwrites tenants, or hard data about how the loans have performed. In a February interview, when the products were still relatively new, AB said most tenants who have used the loans are prime borrowers, meaning they have high credit scores and are considered low risk. “We have not seen a single default,” he said.
Is Buy Now/Pay Later a Good Idea?
“These products pose very real problems to people, and people are looking for every possible way to survive,” said Ariel Nelson, a senior attorney at the National Consumer Law Center.
But Nelson and other advocates say such companies aren’t offering any real solutions, instead taking advantage of tenants’ frustrations.
In February, a group called Protect Borrowers published a report on the industry called “Rent Now, Pain Later.” It used a company called Flex as an example of how fare splitting works.
“Users pay a subscription fee of $14.99 per month and a 1% bill payment fee each time they pay,” the report explains. If the user pays for Flex with a credit card, an additional 3.5% fee is also charged.
As an example, “A user whose rent payment is $1,500 due on October 1 makes an initial payment of $909 ($900 for rent, plus $9 in bill payment fees) and then borrows $600 to cover the remainder of his rent. In the background, Flex pays the landlord the entire $1,500 directly. On October 15, Flex pays the landlord $600 along with $6 in bill payment fees.” Payment is due.”
In total, a tenant would pay about $30 to borrow $600 for 14 days, a cost that Protect Borrowers says is roughly equivalent to a payday loan.
But a Flex spokesperson says it’s justified.
Ryan Metcalf said, “I think (for consumer advocates), in an ideal world, the income would be substantial.” “It will match expenses exactly. There will be no late fees. There will be no ability to evict people and housing will be affordable. It’s a really great aspirational world.”
In fact, Metcalf said, tenants often pay late fees or access other, even higher-cost, credit products that “complicate their situation,” as he puts it.
Flex, meanwhile, has what Metcalf calls a “railroad” to protect tenants, including no late fees, no compounding interest, a flat fee for usage, and no loan “stacking” — meaning a borrower must pay back the loan before taking out another loan.
There are no ‘railing’ requirements
However, one of the problems with “guardrails” is that they are good-faith decisions, not firm requirements.
“A fintech may have consumer-friendly policies, but the best recourse for consumers facing a problem would be the Consumer Financial Protection Bureau, which the current administration has gutted,” said Adam Rust, director of financial services at the national nonprofit Consumer Federation of America.
As USA Today reported, the Trump White House has made deep cuts to the bureau, which was established after the 2008 financial crisis.
While both Asusu and Flex say they are heavily regulated, the rules they face prioritize their and their partners’ financial stability, Rust explained — not customer experience.
The notable lack of consumer support is further exacerbated by the fact that many rent-now-pay-later companies have struggled to deliver their services. Protect Borrowers reports – and many social media platforms – are filled with complaints from tenants who encounter faults and cannot get them fixed.
“Many consumers complained that Flex paid their rent late, did not pay even after taking money from their accounts, and did not respond to desperate requests to fix the issues,” the report said.
It says, “In some cases, Flex’s errors have caused damage to consumers’ credit scores. In others, Flex’s errors have led to evictions.”
In response to a question from USA TODAY about the issue, Metcalf said, “If something goes wrong today, we have a perfect policy. If Flex ever makes a mistake, we’ve covered any costs that a tenant might incur, whether it’s a late fee, we’ve gone as far as paying their rent that month. And so… while these things do happen, they happen very rarely at this point.”
What else to do if you can’t afford the rent?
For advocates working on behalf of consumer housing issues, the rise of fintech solutions like rent splitting is a symptom of how the system is failing many Americans. Tenants who are struggling don’t have many good options, Nelson said.
He suggested that a tenant can always ask the landlord if it is possible to extend the payment date or pay in instalments. There is no particular reason why a landlord should be required to collect rent all at once or at the beginning of the month – although there is no compelling reason for a landlord to agree to such a request, especially in very competitive rental markets.
Nelson suggested that for anyone who cannot afford rent, rental assistance programs from both the government and private sectors may be available locally.
Rust said he wondered whether pay-after services would be used mostly as one-time stopgap measures, or whether tenants would use them “month after month”, always financing the rent, always behind.
As Nelson said, “It’s another version of this: ‘It’s expensive to be poor.'”