Provides that a landlord depositing security deposits in an interest bearing account shall be entitled to receive as administration expenses a sum equivalent to 20 percent of the interest earned by such security money per annum, but not to exceed one percent per annum of the money so deposited.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A6696
SPONSOR: Walker TITLE OF BILL:
An act to amend the general obligations law, in relation to tenant secu-
rity deposit accounts
PURPOSE OR GENERAL IDEA OF BILL:
Ensures that tenants receive a fair share of the interest earned by
their security deposits.
SUMMARY OF PROVISIONS:
This bill amends General Obligations Law 7-103(2) to provide that the
fee retained by landlords for their expenses in administering tenant
security deposit accounts shall be twenty percent of the interest earned
on such accounts, up to a maximum of one percent of the amount on depos-
it.
EXISTING LAW:
General Obligations Law § 7-103 currently authorizes landlords to retain
the first 1% of any interest earned on a tenant's security deposit.
JUSTIFICATION:
Prior to 1970, there was no requirement that tenants be paid interest on
the money held by landlords as security deposits for their apartments.
Instead, landlords were free to place those funds in non-interest bear-
ing accounts, and to simply return the security deposit to the tenant at
the end of the term of the lease.
The Legislature sought to cure this inequity through the passage of
Chapter 1009 of the Laws of 1970, which amended General Obligations Law
§ 7-103 in two ways. First, the law provided that landlords in buildings
with six or more dwelling units must place security deposits in accounts
been greatly diminished by the manner in which Chapter 1009 was drafted
and has been implemented, together with other events that have occurred
during the past 30 years.
When the amendments to General Obligations Law § 7-103 were enacted in
1970, interest rates on basic savings accounts were about 6%. As a
result, at the time it appeared reasonable to permit landlords to retain
a 1% administrative fee, because the tenant would still receive most of
the interest earned. For example, a $1000 security deposit would earn
$60 per year, with $50 (83% of the total interest) being paid to the
tenant and $10 (17% of the total interest) being paid to the landlord.
Over the years, however, there has been a significant drop in interest
rates on savings accounts, and under the current statutory scheme
tenants have borne all the financial consequences of that decrease.
Indeed, some banks are now paying only 1.1% interest on tenant security
deposits, but the landlord is still getting a full 1% fee, and the
tenant is left with only one-tenth of 1%. For example, the same $1000
security deposit that earned $60 per year in 1970 would earn only $11
per year now, with the landlord still getting $10, and the tenant only
$1. Thus, now the landlord is receiving 91% of the security deposit
interest, and the tenant is receiving only 9%. General Obligations Law §
7-103 specifically provides that rental security deposits " continue to
be the money of the tenant.... and shall be held in trust by the land-
lord" for the tenant, and thus it is particularly unfair that the land-
lord should receive most of the interest on such deposits.
The adverse impact on tenants is further exacerbated by the manner in
which security deposit earnings are calculated for tax purposes.
Specifically, even though § 7-103 provides that the administrative fee
is paid directly to the landlord, and only the interest actually paid to
the tenant "shall be the money of the person making the deposit", most
banks calculate the full interest earned as income of the tenant. As a
result, all the interest is reported to the Internal Revenue Service and
set forth on the tenant's Form 1099 each year, and the tenant must pay
income taxes on that full amount.
This results in a gross inequity for the tenant. Using the same example
once again, a $1000 security deposit earning 1.1% will pay $11 in inter-
est each year, with $10 being paid to the landlord and $1 being paid to
the tenant. However, the bank reports the full $11 as income of the
tenant. If the tenant is in a 20% tax bracket and does not itemize
deductions, the tenant will have to pay $2.20 in income tax. In other
words, the tenant who has $1000 being held in trust in a security depos-
it account will end up with a $1.20 loss per year ($1 in interest minus
$2.20 in taxes), while the landlord will receive a $10 gain per year
from the "administrative fee", even though the bank is performing all
the administrative duties. Ironically, the tenant would be better off if
the money was placed in an account that earned no interest at all.
In addition, by switching from a flat fee to a percentage fee, this bill
will give landlords an incentive to seek out the highest interest
accounts available. For example, a landlord holding $750,000 in tenant
security deposits will receive a fee of $1,650 per year if the funds are
placed in a tenant security deposit account earning 1.1%, but the fee
will increase to $3,750 per year if the funds are placed in an account
earning 2.5% per year. Encouraging the use of accounts earning higher
interest rates will provide benefits to both the landlord and the
tenant, with landlords earning higher fees and tenants receiving larger
interest payments. •
Chapter 1009 of the Laws of 1970 was truly landmark legislation, ensur-
ing for the first time that the tens of millions of dollars in security
deposits paid by tenants would be placed in interest-bearing accounts to
benefit tenants. Unfortunately, a combination of several factors the way
the legislation was drafted, the transfer of administrative duties from
landlords to banks, the absence of financial incentives for landlords to
seek higher-earning accounts, and the subsequent, significant drop in
interest rates has resulted in some tenants experiencing financial loss-
es under the current statutory mechanism for allocating interest on
tenant security deposit accounts. This legislation addresses this prob-
lem and ensures that tenants will once again be paid an appropriate
percentage of the interest earned by their security deposits held by
landlords.
PRIOR LEGISLATIVE HISTORY:
2016: A10359 - Ordered to Third reading cal.105
2017-2018: A6254 - Ordered to Third reading cal.441
2019-2020: A5200 - Referred to Judiciary
2021-2022: A4396 - Passed Assembly
2023-2024: A1255 - Referred to Judiciary
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
None.
EFFECTIVE DATE:
The bill takes effect on the first of January following enactment.
STATE OF NEW YORK
________________________________________________________________________
6696
2025-2026 Regular Sessions
IN ASSEMBLY
March 7, 2025
___________
Introduced by M. of A. WALKER, EPSTEIN, MAMDANI -- read once and
referred to the Committee on Judiciary
AN ACT to amend the general obligations law, in relation to tenant secu-
rity deposit accounts
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Subdivision 2 of section 7-103 of the general obligations
2 law, as amended by chapter 402 of the laws of 1979, is amended to read
3 as follows:
4 2. Whenever the person receiving money so deposited or advanced shall
5 deposit such money in a banking organization, such person shall thereup-
6 on notify in writing each of the persons making such security deposit or
7 advance, giving the name and address of the banking organization in
8 which the deposit of security money is made, and the amount of such
9 deposit. Deposits in a banking organization pursuant to the provisions
10 of this subdivision shall be made in a banking organization having a
11 place of business within the state. If the person depositing such secu-
12 rity money in a banking organization shall deposit same in an interest
13 bearing account, [he] such person shall be entitled to receive, as
14 administration expenses, a sum equivalent to twenty percent of the
15 interest earned by such security money per annum, but no more than one
16 [per cent] percent per annum [upon] of the security money so deposited,
17 which shall be in lieu of all other administrative and custodial
18 expenses. The balance of the interest paid by the banking organization
19 shall be the money of the person making the deposit or advance and shall
20 either be held in trust by the person with whom such deposit or advance
21 shall be made, until repaid or applied for the use or rental of the
22 leased premises, or annually paid to the person making the deposit of
23 security money.
24 § 2. This act shall take effect on the first of January next succeed-
25 ing the date on which it shall have become a law.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD06812-01-5
