PayPal and the company it acquired, Venmo, can be used to collect rent electronically. Many owners swear by these services, which appear to be free. But should you use PayPal or Venmo to collect rent?
PayPal and Venmo are Not Free for Landlords
The free “send money to friends” option cannot be used by landlords and tenants. All business transactions, including rental payments, must pay the transaction fee. This is because the fee activates certain buyer/seller protections that are necessary if there’s a disagreement.
If a landlord collects rent without paying the fee, there are no seller protections. Suppose a renter asks PayPal or Venmo to get their money back (for instance, they allege the apartment does not meet code). In this case, PayPal or Venmo do not protect the landlord as the seller of a service. They can refund the renter no questions asked and debit the landlord’s account.
PayPal and Venmo used to allow renters and landlords to transact “as friends” without a service charge. They are clamping down on this. They now require landlords to disclose their status as a landlord, rather than a friend. Also, starting July 20, 2021, Venmo has allowed senders to designate that their payment is for goods or services. This takes the decision about whether to report out of the landlord’s hands, and will subject landlords automatically to the Venmo fee of 3% (PayPal’s fee is 2.9%).
If PayPal or Venmo detect that you are transacting rent payments using the free “send money to friends” option, PayPal or Venmo may even suspend your account pending review.
The 3% fees on rent will add up quickly for rent payments. On a $1,000 payment, your PayPal fee will be $29 and your Venmo fee will be $30. If you don’t like large transaction costs, using PayPal or Venmo to collect rent is not for you.
Using PayPal and Venmo to Collect Rent Raises Legal Questions in Eviction
The way most electronic rent collection systems work, PayPal and Venmo being no exception, the renter is in complete control of whether, when, and how much rent they send to the landlord. From the renter point of view, this is an advantage and a necessary control. But owners sometimes should not accept rent.
The most common scenario when an owner might wish to refuse payment is an eviction. States like Massachusetts and California have “cure” processes: a renter who is being evicted for nonpayment can remain in the apartment by giving all required money to the owner. An owner can normally refuse to accept partial payments. But if a renter has habitually made partial payments via PayPal or Venmo account, and the landlord has not noticed or objected right away, a judge may rule that the landlord has created a new tenancy at the partial rent. This may require that your eviction be started over or that you forgive large amounts of back rent.
Suffice it to say, in order to maintain control of an eviction proceeding, you might have to close your Venmo/PayPal account before a renter deposits money there. That will impact your other collections.
PayPal and Venmo are Generic Payment Platforms
PayPal and Venmo are generic systems. They give renter the power to push funds into your account, which can undo an eviction. They charge roughly $30 per thousand collected, which will add up quickly. They have no more features designed for rent collection than free online banking billpay. Choose carefully before deciding to use PayPal or Venmo to collect rent.