I have an old college acquaintance who set up as a landlord in Santa Cruz, CA -a college town with a shortage of housing-- who as a matter of policy required all tenant applicants to pay $XX for a credit check.
He didn't actually check credit, he just used the fee as free money to him, justifying that it was a screening device; those who would pay for a checkhad decent credit and were suitable tenants, those who wouldn't didn't and weren't.
Is this not illegal in CA? ...
It's generally not illegal, but the amount collected is part of the security deposit and would have to be returned in due course, subject only to withholdings authorised by law. (Note, however, that California law imposes a maximum amount of security. The practice described above might be illegal if the collection of the fee causes the landlord to receive more than the maximum amount of security allowed by law.)
Here is the explanation:
Section 1950.5 of the California Civil Code ("CCC") provides certain rules that apply to security deposits in the case of "a rental agreement for residential property". CCC § 1950.5(a).
For the purpose of CCC § 1950, the term "security" includes any amount "imposed at the beginning of the tenancy ... used or to be used
for any purpose". CCC § 1950.5(b) (emphasis added). This is a broad definition. A screening fee is generally part of the security deposit.
At the conclusion of the tenancy, the landlord must return the security to the tenant, subject only to lawful withholdings. CCC § 1950.5(g)(1). All security must be refundable and the rental agreement cannot attempt to make any portion of the security nonrefundable. CCC § 1950.5(m).
From the above, we see that in California, any application or screening fee is generally part of the security deposit and must be refunded in due course, subject only to lawful withholdings. However, this rule is subject to one exception: "the landlord or his or her agent may charge that applicant an application screening fee", but "[t]he amount of the application screening fee shall not be greater than the
actual out-of-pocket costs of gathering information concerning the applicant". CCC § 1950.6(a), (b) (emphasis added). In the fact pattern that bobechs posted, no actual screening is being done so there are no out-of-pocket costs, and thus this exception is not relevant, so the amount collected is part of the security deposit.