A new class action claims Airbnb may be holding on to a little more than just customers' room reservations, as plaintiffs accuse Airbnb of making money off of customer deposits in interest bearing escrow accounts.
The lawsuit asserts this violates California law, which allegedly forbids the practice unless companies meet very stringent requirements and possess a license to do so.
Jamie Edson and Craig Mullins, on behalf of themselves and others, filed a new class action lawsuit against Airbnb Payments Inc. on Feb. 24 in San Fransisco County Superior Court, accusing them of multiple violations of California's Unfair Competition Law for allegedly acting as an unlicensed escrow with regard to customer deposits being held in lieu of accommodations.
Escrow is defined in California law as the process whereby parties to a real estate transaction, whether leased or otherwise, deposit documents, funds, or other things of value with a neutral third party known as the escrow holder. Those items, specifically funds with Airbnb, are held in trust until a specific event or condition takes place, according to a written agreement. This account can be interest bearing. However, under California law, if funds are to be returned, they must include any income generated.
According to the complaint, when a guest checks in, Airbnb sends the payment for the rental to the host, generally within 24 hours after the scheduled check-in. But, if the guest cancels, or objects to the short-term lease at check-in for some reason, funds are typically refunded to the guest.
The complaint asserts California law also specifies that the account must not co-mingle with other funds to protect the general public should the market take a loss, putting the funds at risk.
According to the complaint, this is allegedly where Airbnb took a wrong turn, allegedly by co-mingling collected guest funds with its own funds, placing all of its cash assets in various bank accounts, money market funds and short-term bonds.
Airbnb Payments Inc. processes around $80 million Airbnb payments annually, according to the complaint. In the third quarter of 2022, Airbnb collected $58.5 million in interest income on its commingled investment accounts that contained customer funds that were supposedly not properly escrowed, according to the complaint.
Another point of contention, the suit alleges Airbnb Payments continues to arbitrate between parties, in some cases, allegedly illegally modifying established escrow instructions and requirements during disputes.
The suit contends that Airbnb Payments is not a licensed escrow agent. The complaint asserts that, since a bond was not posted as a conditional requirement to become one, Airbnb Payments allegedly was most likely acting unlawfully.
Edson and Mullins are demanding a jury trial, and are seeking court orders requiring Airbnb to abide by California law. They are also seeking damages, including restitution of all allegedly wrongly withheld funds plus interest, attorney fees and court costs.
Plaintiffs are represented by attorneys Caleb Marker, Christopher Nagakawa, and Flinn T. Milligan, of Zimmerman Reed LLP, of Los Angeles