Industry veteran Eric Walker has expressed concerns that the coronavirus crisis could tempt unscrupulous lettings agents to raid insured deposits for cash.
The former Belvoir and Northwood managing director, now a consultant, aired his concerns on Twitter, stating: “For years I have campaigned for all tenants deposits to be held in custodial schemes.
“With agents starved of income, I just hope my fears aren’t realised and it becomes an easy source of ‘lending.’”
He suggested the delay in mandatory client money protection could backfire as a result of the pandemic and pressure on some agents for cashflow.
Deposit protection schemes have urged agents to opt for custodial options to reduce any temptation to access the funds.
Eddie Hooker, chief executive of deposit protection scheme mydeposit, said he has previously been concerned about insured schemes being misused as loans.
He said: “Previous audits have thrown up concerns that agents and landlords may already be using tenant deposits on a loan basis and this will no doubt become more prevalent as the months go on.
“For total transparency and with the best interests of the tenant in mind, we would urge landlords and agents to opt for custodial schemes and to resist the temptation of misusing deposit money in their possession.”
Steve Harriott, chief executive of the Tenancy Deposit Scheme (TDS), added: “Agents are not allowed to touch their client monies unless it’s for an authorised reason, such as paying rent to landlords or to repay deposits at the end of the tenancy.
“We would expect the full force of the law to come down on agents who don’t follow the rules.
“It is worth reminding everyone that the rules requiring compliance with the tenancy deposit legislation and client money protection regulations remain fully in force.”
Harriott said agents can switch to its custodial scheme at any point, which would save money for those who want to avoid paying deposit protection fees.
Deposit replacement schemes backed Walker’s concerns, adding that this is a good argument for alternative services.
Nick Hamatsos, co-Founder of Hamilton Fraser-backed Ome, said: “There’s a very real chance that in what looks to be a very tough few months, agents and landlords may well turn to their deposit pot in order to get by.
“Client money protection is fantastic and helps provide redress for tenants and landlords who have had their money misappropriated and the introduction of mandatory CMP is a huge milestone for the industry.
“However, it only protects consumers after the event of misappropriation rather than prevents it.
“The solution is to reduce the risk by limiting access and that’s why, at Ome, we’re very much anticipating a future where deposit protection, whatever flavour that may be, will become the responsibility of the tenant as it is their money.”
Jon Notley, founder of Zoopla-backed Zero Deposit, added: “Clearly cash strapped businesses may be tempted to use any available resource over the coming weeks to survive.
“In reality, any agent who has embraced CMP, custodial schemes, deposit replacement or have simply acted quickly and decisively to adapt their businesses to the immediate crisis, are less likely to act in this way.
“Sadly, this could be another situation where the behaviour of a desperate few could do damage to the reputation of the industry as a whole.”
For years I have campaigned for all tenants deposits to be held in custodial schemes. With agents starved of income, I just hope my fears aren’t realised and it becomes an easy source of ‘lending’.
— Eric Walker (@JustEricWalker) March 31, 2020
Totally agree Eric, although for agencies that may be desperate for cashflow it won’t stop them from not registering their deposits in a custodial scheme in the first place.
We’ve had such a busy March that we’ve sent about £25k to £30k to a custodial scheme in the past fortnight alone and if we weren’t in a strong position I could see how some people could be tempted to ‘borrow’ it for a period to help them through.
Quite why the deadline was delayed for CMP I just don’t understand, we didn’t have it prior to the deadline being set but got it sorted in plenty of time and there really was no reason to extend it and allow those who haven’t been organised to benefit from not having the cost for another year.
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The last thing the industry needs is another consultant accusing us all of being thieves. Bottom feeders are so tiresome and 99.9% of agents wouldn’t dream of doing this. Agents already have CMP and our customers shouldn’t worry.
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This is absolutely why all deposits should be held in a custodial scheme and if our industry takes another hammering because of a few, it will be ARLA and other industry ‘big wigs’ who will be to blame. We need this industry to be whiter than white and unfortunately due to that minority, we can not be trusted! The schemes need to take responsibility for this, and perhaps they can use what will become a slower period for them to carry out some remote audits!
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The benefits of custodial schemes are obvious. Shouting “Fire, Fire” from the sidelines, during a pandemic, when you have a commercial interest in the products above, will be seen for exactly what it is. A plug for personal gain.
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