Startup Alternative to Rental Security Deposits Gets Legal Backing in Baltimore

Originally published in The Intercept on May 5, 2021.

A NEW BILL in Baltimore passed the City Council last month, promising to address the problem of high security deposits for renters while being met with objections from local housing and tenant groups. Mirroring similar statutes that have passed recently in two other cities, the bill requires Baltimore landlords to offer alternatives to the traditional security deposit. If tenants can’t or don’t want to pay a lump sum up front, landlords must offer one of two alternatives: either pay the regular deposit in three monthly installments or purchase so-called rental security insurance.

The bill doesn’t specifically name Rhino, a real estate startup that launched in 2017, but it’s widely understood that “security insurance” refers to a financial product that Rhino promotes. The product allows tenants to pay a small monthly nonrefundable fee in lieu of a large refundable security deposit. The average Baltimore deposit is $1,000, and a typical Rhino policy for that would be about $5 per month.

Local housing groups in Baltimore say they support the idea of offering three monthly installments as an alternative, but virtually all housing activists in the city have concerns about the Rhino insurance model. Lawmakers rejected an amendment introduced by Ryan Dorsey, one of just two council members to vote against the legislation, to take the Rhino option out of the bill.

The local outlet the Baltimore Brew reported that Rhino lobbied for the legislation and arranged for two council members, including the bill’s primary sponsor, Council Vice-President Sharon Green Middleton, to speak on Rhino-hosted housing roundtables. (Middleton did not return The Intercept’s requests for comment.) Jordan Stein, Rhino’s head of public policy and a onetime assistant in former New York City Mayor Michael Bloomberg’s administration, registered as a city lobbyist on March 29, two days after the Baltimore Brew article was published.

The bill is heralded as “giving renters choice,” but the legislative text gives the ability to pick between monthly installments or Rhino to the landlord, not the tenant. Landlords nationwide dislike monthly installment options, typically viewing them as too risky.

The bill is now on the mayor’s desk. In a letter sent to Mayor Brandon Scott and the City Council, the Baltimore Renters United coalition urged a veto, calling the bill predatory and warning of unanticipated costs for tenants down the line. Under the Rhino model, the company promises to cover the landlord’s risk up to the value of the deposit, and if a landlord files claims for excessive damage on top of that or for unpaid rent that Rhino deems legitimate, then the company will pay the landlord and seek reimbursement from the renter. Rhino co-founder Ankur Jain told The Intercept that it would never sue a renter for those costs and that if a renter defaults on their bill, the company will simply take a loss, but Rhino’s tenant agreement form warns that failure to repay could hurt the tenant’s credit score and their ability to find housing or obtain any kind of insurance in the future. (Scott’s office did not return multiple requests for comment.)

The Baltimore Sun editorial board has urged the mayor to sign the legislation, arguing that renters may even be more protected from false landlord claims with Rhino and that “the important thing is, they will have choices.”

Less than two weeks after the council passed the law, Middleton co-authored an op-ed in the Washington Post with a city council member from Atlanta and the mayor of Cincinnati, the two other cities that have adopted the legislation, in which they “strongly encourage cities across the country” to follow suit. 

“If local leaders have any doubts, look to our results,” they write. “Renter’s Choice legislation is one of the best examples today of private-sector innovations leading to public-sector solutions.”

In December, CNN Business published a piece with a similar stance, in which Los Angeles Mayor Eric Garcetti, Miami Mayor Francis Suarez, and Jain argued together that pushing more “renter’s choice” bills would unlock funds from security deposits and provide immediate relief to tenants. “While the federal government continues to delay, we’re bringing about the single largest rent relief initiative in the country,” they claimed. Tenant advocates in Miami immediately blasted the op-ed.

Lawmakers in at least 10 other states have announced their intent to pursue similar bills, despite little evaluation of how the nascent laws have worked. (Rhino says 1 million renters use their insurance nationwide.) In an open letter, a coalition of supportive politicians linked to a petition hosted by Kairos, a venture capital firm that backs Rhino and which Jain also co-founded. Both supporters and detractors say they’re looking to prioritize the needs of low-income, vulnerable renters.

“Many of the people who will benefit from this legislation are seniors and Black and Latina women raising children,” Middleton wrote on Facebook. “[The bill] is about equity and confronting homelessness in a city where 70% of our neighbors without housing are Black.”

Zeke Cohen, the other Baltimore council member to vote against the bill, noted that his city was ground zero for the subprime mortgage crisis. The Rhino bonds “have a similar logic,” he told The Intercept. “They get tenants into housing quickly without the need for a security deposit. But just like subprime loans, they may result in financial ruin. … As always, the people who will be most hurt by this are financially vulnerable Baltimoreans, who are mostly Black and brown.”

JAIN, THE RHINO CO-FOUNDER, is a well-connected young entrepreneur who formerly worked as a vice president for Tinder. In an interview, Jain insisted that his goal was to ease the burden on renters.

“We look at the opportunity cost and the loss of flexibility from locking away that hard-earned money in an escrow account,” he said. “Someone might decide it’s better for them to have super low monthly premiums [instead of a security deposit] and use that money to pay off debt or interest payments or put it in the stock market where it can have a higher return.” Rhino and its supporters have been calling this idea a “stimulus” since it would free up funds an individual could theoretically spend.

In 2019, Rhino released a “Renter Choice and Flexibility Plan” on Medium, calling to “unleash” $45 billion in security deposit funds sitting in escrow accounts by 2021. Since it is not mandatory in most cities for landlords to offer security deposit alternatives like Rhino, many don’t. Rhino’s political strategy, then, has been to persuade elected officials to require it.

Jain said that by requiring landlords to make it an option, the company is helping ensure that lower-income tenants can take advantage. “If you go to most major cities, most high-rises already offer products like Rhino because it’s become a market standard,” he said. “But landlords operating smaller buildings don’t always offer alternatives, so these types of policies are designed to create more equitable access.” (Other competitors offering Rhino-like products include LeaseLock and TheGuarantors, which both launched in 2014, and Jetty, which launched in 2015.)

Rhino has also been courting landlords. In a leaked webinar the company held on April 28, which has since been taken down, head of sales Eric Krauss encouraged landlords to embrace its product to increase vacancies more quickly. Krauss also made clear that Rhino policies will be customized for each renter and that “riskier” tenants will have higher monthly premiums. 

Critics say calling these products “insurance” is a deceptive marketing ploy that provides tenants with a false sense of security. Some housing experts describe them as more akin to a surety bond, a type of three-way agreement in which a company promises one party that the other will meet its obligations. Housing authorities have taken different sides on the question, and supporters note that Rhino and its peers are licensed insurance agencies. 

“If tenants think of the product as insurance, as it’s described in Rhino’s marketing materials, and either don’t realize they’re purchasing a bond or don’t know how a bond works, they may unwittingly sign up for a liability that far exceeds what they would ever willingly fork over to their landlord for a cash deposit,” warned housing reporter Alex Williamson in a Shelterforce article last December.

Williamson interviewed two tenants who confronted large unexpected charges from Rhino at the end of their leases, after their landlords claimed that they had to make repairs and handle damages due to their behavior.

One tenant was Peter Steininger, a college student in Brooklyn whose landlord suggested that he get Rhino for a $45 monthly fee. (Rhino is available but not legally required in New York City.) When Steininger signed the contract, he didn’t realize that he was agreeing to pay the company for claims up to $7,200, more than double his security deposit.

When Steininger moved out, he learned that his landlord had filed $6,000 in claims. Steininger disputed the charges and provided evidence that the landlord had made false allegations. Rhino sent Steininger an automated message saying the company had ruled in the landlord’s favor, and Steininger said he struggled to connect with anyone in customer service thereafter.

Steininger told The Intercept that Rhino reached out to him shortly after the Shelterforce article was published and agreed to cancel the charges. “I think I probably would’ve been screwed if it wasn’t for Alex and Shelterforce,” he said.“

Rhino maintains that the experiences outlined in the Shelterforce article are not representative, that they’ve since stopped partnering with Steininger’s landlord, and that they cut off landlords generally who make fraudulent claims. “We learned a landlord abused the policy and claimed things that were not necessarily accurate,” Jain said. “We are no longer working with them, and the renter was fully protected.”

Housing advocates warn another major risk of Rhino is requiring that renters sign arbitration agreements, thereby giving up their right to take a landlord to court.

“These Rhino products are basically a scam, and that’s why they’re going around trying to get laws passed to specifically authorize these things,” said Eric Dunn, director of litigation at the National Housing Law Center. “Because they know if they just market them without some kind of legislation saying it’s okay, then they could probably be sued under state consumer protection laws.” 

Rhino supporters say complaints that tenants will lose their right to take landlords to court ignore that most tenants never do so even when they have good reason to. “If a landlord just keeps your security deposit, chances are you won’t spend $5,000 in court to get it back — and they know that,” Jain said.

Dunn thinks there is a version of Rhino that could be beneficial to landlords and tenants, but he’s pessimistic that it will work out in practice because a less scrupulous product “could be more profitable.”

WHILE RHINO AND its legislative partners are urging passage in more cities as soon as possible, citing the pandemic and the nationwide affordable housing crisis, there is not clear evidence of how the laws have worked in cities where it’s already passed.

In Cincinnati, the first city to authorize such a law, the legislation took effect in April 2020.

Zach Frye, a housing attorney at the Legal Aid Society of Greater Cincinnati, told The Intercept that so far they haven’t seen much adoption of any of the security deposit alternatives by local landlords. Some of that, Frye suggested, could be driven by ambiguities in how the law was written. “The text of the law seems to have led to some confusion as to whether it’s mandatory for the landlord to offer, [and] I think that a lot of landlords have decided not to deal with this and keep on doing business as usual,” he said.

While a Curbed article from 2019 suggested that the Legal Aid Society of Greater Cincinnati had backed the entire bill, Frye said his organization had supported alternatives like monthly installments, but not the provision authorizing Rhino. “Overall, we don’t see many tenants as being aware of this law,” Frye said. “And at least as to the ‘insurance’ option, that may be a good thing.”

“Ideally, I’d like to see exorbitant security deposits done away with completely, especially since they are so often used as a way to simply extract more money from renters,” said Seth Weber, a volunteer with the Cincinnati Tenants’ Union, who also doesn’t think most renters know the law exists yet. “But this is a half-measure in a city with a massive housing crisis, and to me that is unacceptable.”

In Atlanta, the legislation passed in October under the radar of local housing advocates, who said they were too consumed by the Covid-19 crisis to pay it much notice. Bambie Hayes-Brown, president of Georgia Advancing Communities Together and an appointee to the City of Atlanta Housing Commission, told The Intercept that she plans to bring up the legislation at their next policy meeting “to see if we can find out some information about how this is going.”

Back in Baltimore, Marceline White, executive director of the Maryland Consumer Rights Coalition, co-authored a Baltimore Sun op-ed in April outlining her concerns with the proposed legislation and its lack of protective guardrails. White told The Intercept that it’s been “radio silence” from lawmakers since her op-ed came out.

“When you hear warnings and pleas from housing advocates and consumer protection experts that this might not be implemented in a way that it was intended, then perhaps you want to take a pause,” she said. “It feels far too casual to say, ‘Oh, we’ll fix it later if we have to.’”