Agents have been accused of using tenancy deposit replacement products to earn commission, and make up for revenue lost because the tenancy fees ban.
The accusation comes as a tenant has said it was not made clear to him and his partner by the agent that deposit-replacement payments are non-refundable.
One of the industry providers has expressed concerns that some agents are selling some of the products “aggressively”.
The tenant, identified yesterday in a BBC story only as Simon, 23, and his partner were unable to afford the £1,000-plus rental deposit required to rent in Sussex.
“Eager to move quickly, the couple decided to rent through an agency which offered a deposit-free option,” says the BBC.
“It wasn’t until they had already put money down and were going through the paperwork that they realized the monthly fee to rent without a deposit was money they would never get back.
“Simon has been living there for more than a year – and has paid more than £500 in fees so far.
“He feels the agency did not highlight the fee was non-refundable.”
Simon says had it been explained, he would not have chosen to rent without a deposit.
Instead he would have taken out a loan, or saved up for a traditional deposit: “Then at least we would get our deposit money back – rather than it going down the drain.”
The un-named agency has told the BBC that it communicated clearly, and that Simon had signed to say he understood the terms which were “made clear at every stage of the rental process”.
The BBC story quotes Georgie Laming, of Generation Rent.
She said that some tenants feel under pressure to accept a deposit-free option.
Letting agents can earn commission from selling the products, and “schemes owned by agents themselves can also be lucrative,” says the BBC story.
It quotes Laming as saying that some agents see it an income opportunity following the fees ban.
She said that there are now at least eight products on the market, with differing terms, which she said can be confusing.
Some, she claimed, charge tenants as much as £100 to dispute a damage claim – a free which does not exist where traditional deposits are held in a government-backed scheme.
Former ARLA president Peter Savage, spokesperson for provider Zero Deposits, yesterday afternoon said: “ We have been emphasising the importance of FCA regulation since we launched in 2018.
“We are deeply concerned that unregulated products can be sold freely and aggressively to tenants and this will lead to more complaints and adverse publicity, damaging the reputation of agents in the process.
“We urge agents and landlords to act responsibly and choose to partner with only FCA regulated deposit replacement products, along with their associated protections and safeguards.”