How to Navigate Peer-to-Peer Payment Apps

Due to continued advances in technology, we are now living in the “App Era” which includes Peer-to-Peer payment apps, such as Venmo, Cash App, PayPal, Zelle, Apple Pay, etc.

For most affordable housing programs, the determination of annual income includes income derived from household assets. One of the many challenges for managers is determining if the Peer-to-Peer app is an asset and if deposits made into Peer-to-Peer payment accounts are considered income.

A Peer-to-Peer payment application is not a bank account, but rather a smartphone app that slightly resembles an escrow account. The Peer-to-Peer app can be used to receive income or hold money (asset).

Peer-to-Peer apps are not a bridge that instantaneously allows the transfer from one bank account to another, like direct deposit. Instead, they allow money sent from the transmitting bank account to be held within the payment application platform. Funds are transferred from the Peer-to-Peer application to the receiving bank account only when the applicant/tenant executes the transfer transaction within the app.

Due to the increase in use of Peer-to-Peer apps, it is important for managers to understand how to determine if the Peer-to-Peer app is to be treated as an asset and determine if deposits made into the app should be treated as income.

Are Peer-to-Peer Apps Considered Assets?

To determine if the Peer-to-Peer app is an asset one must first verify if the Peer-to-Peer application allows the user to maintain a balance in their account. If so, then the balance of these accounts should be treated like an asset to the account holder.

The cash value of the asset would be treated like that of a savings account using the current balance. There would be no actual asset income derived, as interest is not earned on the balance.

Please note, if an applicant/tenant is using the Peer-to-Peer payment app for business purposes, then the accounts would be excluded as an asset. Assets that are a part of an active business are not considered household assets. Please refer to HUD 4350.3 Exhibit 5-2.

How to Verify Peer-to-Peer Apps

To verify the current balance held, managers need to have the applicant/tenant open the Peer-to-Peer app platform and download a current statement. Screenshots of the current balance are unacceptable. Each payment application platform offers a way to download a current statement with balance. Managers will want to make sure what the applicant/tenant is providing is the most recent statement (within 120 days of effective date of the certification) for the payment app.

Are Deposits Considered Income?

Managers should review the current statements that the applicant/tenant provides to determine if there are consistent deposits being made. If managers see recurring deposits, the applicant/tenant should be asked to provide an explanation to the following questions:

1. Are deposits “loan proceeds?”

Meaning are the payments being made to the applicant/tenant by an individual to repay money the applicant/tenant loaned to the individual? If the answer is yes, the deposits should not be included as income.

2. Are the deposits being made into the account from another household member residing in the unit?

If the answer is yes, the deposits should not be included as income.

3. Are the deposits being made on a periodic basis (from someone not included in the household) to the applicant/tenant to help financially support the applicant/tenant?

If yes, the deposits should be counted as income. (Note: If the applicant/tenant has already disclosed that they receive cash contributions, care should be taken to not accidently count the contributions twice; however, the amounts deposited into the Peer-to-Peer app account should be compared to the amounts reported by the applicant/tenant and any discrepancies should be clarified.)

4. Are the deposits received by the applicant/tenant payments for a business?

If yes, these deposits are not considered household income. However, the amount of the deposits made into the Peer-to-Peer app account should be compared to the business’s gross income reported and documented by the applicant/tenant, and any discrepancies should be clarified.

In short, deposits should not be ignored but should be investigated to determine if they represent income to a household that must be counted for housing eligibility purposes.

MLCM suggests updating applications and annual recertification questionnaires to ask about Peer-to-Peer App payment accounts, eWallets, and other payment exchange apps/accounts.

Creating and maintaining affordable housing communities is a complex task. Numerous state and federal requirements must be followed – both during development and for years thereafter. MLCM clarifies LIHTC, Federal HOME, HUD, and certification requirements you must follow to remain compliant. For more information regarding services MLCM offers, be sure to visit our website’s Services pages and don’t hesitate to contact us.

About the Author