Airbnb and Profiteering

A NYC Housing Court judge issued a Decision/Order in 42nd and 10th Associates LLC v. Ikezi (No. 85736/2014 Feb. 17, 2015) that resulted in the eviction of a rent stabilized tenant who had rented his apartment through Airbnb at a rate much in excess of the rent approved by the NYC’s Rent Guidelines Board.

The Decision makes for a pretty good read in large part because of the incredible testimony of the tenant:

When questioned on Petitioner’s case whether Respondent charged anyone money to stay in the subject premises, Respondent first testified that he could not recall if he ever charged anyone money to stay in the subject premises for a tenancy, and then testified that he does not know if he ever charged anyone money to stay in the subject premises. Given that Respondent was being sued for eviction, that Respondent testified as such on January 21, 2015, and that Respondent’s tenancy commenced on October 10, 2014, three months and eleven days before his tenancy, Respondent’s inability to remember or know if he had charged anyone to sleep in the subject premises defies common sense. Such incredible testimony was of a piece with other testimony Respondent offered, such as his response to a question about how many nights he has slept in the subject premises with the answer that he does not keep a log of where he sleeps, Respondent’s inability to determine whether a photograph of a comforter on a bed in the ad was a comforter that he owned, Respondent’s lack of knowledge as to other addresses that might be his wife’s address, and Respondent’s testimony that he does not have an email address at the company that he is the president of. If Respondent was actually profiteering by renting out the subject premises as a hotel room, wanted to avoid testifying as such, and was trying to be clever about technically avoiding committing perjury, it is hard to imagine how Respondent would testify differently. (9-10)

The defendant’s testimony demonstrates what happens when the profit motive hits smack up against rent regulation’s policy goal of protecting tenants from large rent increases. Without defining it precisely, the Court refers to this as profiteering which it finds to be inconsistent with the goals of rent regulation and incurable to boot. Thus, the Court issued a warrant of eviction.

This seems like the right result on the law and as a matter of policy. Otherwise, more and more apartments would be informally removed from the regulated housing stock. Moreover, landlords and neighbors would be stuck with the costs of short-term stays while tenant scofflaws would get all the benefit.

Reiss on Payday Lending Regs

CRM Buyer quoted me in CFPB May Rein In Payday Lending. The story opens,

The Consumer Financial Protection Bureau is considering various approaches to reforming the payday loan industry, The Wall Street Journal reported on Sunday.

The bureau is concerned about the short-term, high-rate debt consumers take on, sources said.

States typically have been responsible for regulating payday loan company practices. If the CFPB should take action, it would be the first time federal regulations were applied to this niche in the financial sector.

Consumer advocates have long been calling for some restraints to be imposed on providers of these loans. Interest rates tend to be astronomical, and borrowers frequently are unable to repay the loans within the prescribed time period. What happens more often than not is that they roll their loans into the next pay period, committing to a never-ending series of high-interest, short-term contracts.

The CFPB reportedly is considering approval of a “vanilla” type of short-term loan with underwriting criteria that would establish whether the borrower actually would be able to repay it — an approach similar to the mortgage qualification requirements put in place after the financial crash.

That is not the only model reportedly under consideration, however, and the CFPB might waive such underwriting requirements for borrowers who don’t tap payday advance loans very often, the Journal reported.

Pushback can be expected from the industry, which has been under fire for years. The payday lenders’ argument is straightforward: With so many Americans living from paycheck to paycheck, their services are necessary to meet emergencies.

Defanging the Predator

“There is clearly a demand for payday lending by unbanked consumers who have needs for short-term credit but do not have access to credit cards, home equity loans or other loan products,” said David Reiss, professor of law at Brooklyn Law School.

“At the same time, payday lending repayment terms are often seen as onerous and predatory, with annual interest rates that run in the hundreds of percent and with many customers stuck in a cycle where they roll over their high cost debt from one month to the next, accruing more interest and fees along the way,” he told CRM Buyer.

Given the mission of the Consumer Financial Protection Bureau, Reiss said, it is natural for it to attempt to develop a regulatory structure for the industry that would allow it to function — but not extract predatory profits from its customers.