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