Fair Is Fair

California’s landlords are holding more than $1 billion of their tenants’ money in the form of security deposits, but they are not required to pay interest on these funds, as landlords are in other places. Public utilities pay interest on their customers’ deposits, and it seems eminently fair that landlords should do the same. Otherwise they get free use of that money, which rightfully belongs to their tenants.

A bill introduced in the state Legislature by Assemblyman Rusty Areias (D-Los Banos) would establish the principle that tenants should receive interest on their security deposits, and it would take the first step toward straightening things out. Deposits would be put in interest-bearing accounts at passbook rates, and landlords would be allowed to keep one percentage point a year to cover their administrative expenses. But tenants would not get their accumulated interest until they moved out.

A better idea would be to require the payment of the interest to the tenant once a year. Then the money would get to seem more like the tenant’s, which it is, than like the landlord’s. When the landlord gets to hold the accumulated interest, he starts to think of it as his own.

At least 15 states require that tenants receive interest on their security deposits, which can run from a few hundred to a few thousand dollars. California should also pass such a law, which would bring equity to the state’s tenants. There is no reason landlords should be able to use tenants’ money without paying for it.