Texas House committee debates caps and increases on late fees for tenants, voucher holders

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The Texas House of Representatives Business & Industry Committee is considering changes to the law governing a critical issue for renters: Late fees. On March 27, members heard testimony on two bills that regulate the amount of fees that can be assessed to tenants late on their rent, HB 1098 by Rep. Terry Canales and HB 1821 by Rep. Travis Clardy.

HB 1098 requires a cap on the total monthly late fees for tenants who use Housing Choice Vouchers at 5 percent of their personal rent contribution – that is, if their unit rents for $1,000 but they pay just $300 and the voucher covers the rest, their late fees could not exceed 5 percent of $300 rather than of the total $1,000.

HB 1821 sets a cap on late fees in general, not to exceed 8 percent of monthly rent for an initial penalty and 2 percent of rent for subsequent daily fees until the rent is paid. It would replace the current language in the state property code that requires late fees to be limited to a “reasonable estimate of uncertain damages to the landlord…that result from late payment of rent.”

Rep. Clardy’s bill was heard first, and he said the purpose of HB 1821 was to bring certainty to an issue that has resulted in litigation over the code’s definition of “reasonable.” He emphasized that discussions around the bill are ongoing and that its current fee benchmarks, of 8 percent initial and 2 percent daily, may still change. “We want to make sure the number that’s applied to the late payment of rent is fair to both the landlord and the tenant,” Rep. Clardy said.

Three representatives of the Texas Apartment Association (TAA) testified in favor of the bill. David Mintz, TAA’s vice president of government affairs, said that in seeking a “clearer standard” for fees, the organization had informally asked its members what they commonly charge in order to arrive at the 8 percent and 2 percent figures.

TAA’s secretary Mark Hurley and counsel Bill Warren each spoke of the current law’s lack of a “bright line standard of clarity.” Warren mentioned that TAA’s standard lease limits the number of days late fees can be charged within a payment period to 15 – though there is no such restriction in HB 1821. Hurley said that he did not believe changing the law would lead to landlords who charge less than 8 percent initial fees and 2 percent daily fees to raise their fees to meet the cap.

However, others testifying against the bill disputed TAA’s points. Juliana Gonzales, executive director of the Austin Tenants’ Council, said that in her experience dealing with clients, the common late fees are much less that what the bill proposes – $25 to $50 for an initial fee and $10 to $15 for each subsequent day. Under the bill’s proposed caps, for an apartment rented at $1,000 a month, a landlord could charge $80 initially and $20 each following day in perpetuity.

Texas Housers fair housing planner Charlie Duncan compared the proposed cap to a speed limit, which would incentivize the many landlords who now charge below 8 and 2 percent to raise their fees to the legal standard. He noted that TAA’s own landlord guidebook warns against charging late fees in perpetuity, as “courts definitely dislike late fees that can go on forever without limit,” and warned that the bill does not include protections for situations outside a tenant’s control, such as a payment date that falls on the weekend while a tenant waits for their paycheck to process on Monday.

Several attorneys also testified that the proposed caps would encourage landlords to increase fees. Austin attorney Britton Monts said that the reasonable standard in the property code “was not focused on providing certainty to the apartment industry,” but on protecting tenants from unnecessary fees. He said that his case work on behalf of tenants has found an industry trend of steadily increasing late fees as “a real source of ancillary income” for landlords, not based on any actual harm caused by late payments, and that other states including Maryland and North Carolina cap fees at 5 percent of rent.

Houston attorney Marty Weber cautioned lawmakers against changing the reasonable standard, saying it was “hard to imagine how this could be more fair to landlords” as the only requirement is to calculate the damages from non-payment and assess tenants that amount. But Weber said that in his experience, actual daily damages are nominal, often $5 or less, and that therefore “it is impossible under current law for an apartment owner to justify a $75 or $100 late fee.”

Austin attorney Nelson Mock said that if the reasonable standard was removed, there would be no protection for tenants who are often subject to a domino effect, playing catch-up on both rent and late fees. Mock, who represents primarily low income tenants, told the committee that late fees often cause “people to fall into these perpetual holes that they cannot dig themselves out of.”

Rep. Clardy closed by reiterating that the bill remains a work in progress, and that he could see a case for adding a maximum number of days late fees could be charged. He also mentioned discussion with Rep. Canales about combining HB 1821 and HB 1098 into one larger late fees bill.

Many of the same witnesses testified on HB 1098, with some taking different positions. Rep. Canales introduced his bill by noting that its proposed 5 percent cap on a voucher holder’s personal rent is based on an industry standard as shown in the legislation from other states.

Texas Housers’ Charlie Duncan spoke in favor of HB 1098, stating that the roughly 160,000 voucher holders in Texas needed better protection against late fees disproportionate to their income level. Nelson Mock also testified in favor and gave an example of a client, living on a fixed income because of her disability, who was charged $225 in late fees even though her personal contribution to rent was only $36 a month, because the fees were assessed based on her apartment’s market rate. Mock said he’s had many other similar cases and that in his experience landlords usually do not adjust their late fees policies for voucher holders.

Marty Weber was against HB 1098, again arguing that late fee caps should be much lower and based on a reasonable estimate of damages, as even “5 percent far exceeds the actual damages” landlords incur from late payment. David Mintz said that TAA was neutral on the bill, as they could not support its current language but were open to continuing negotiation on the appropriate cap level for late fees.

Both bills were left pending in committee. Rep. Clardy’s bill has a companion in the Texas Senate, SB 921 by Sen. Charles Perry, which has not yet been scheduled for a hearing.