Regardless of whether there is a ban on referral fees or not, the industry regulator has reiterated that it already has the legal power to prosecute agents who do not reveal them.
James Munro, head of industry regulator NTSLEAT, said: “We consider referral fees to be material information required by the Consumer Protection from Unfair Trading Regulations.
“We would encourage agents to declare the existence and amount of any referral fees received by their business.
“Failure to do so would be a breach of the Regulations, and also of the TPO code which was amended last year to include a reference to the subject.”
NTSLEAT last year published new guidance, and there is currently a consultation into the effectiveness of the present voluntary regime.
However, there have been repeated warnings that if the industry does not clean up its act, then there will be a mandatory ban on referral fees.
We asked why a ban would be necessary if Consumer Protection Regulations already provides the legal firepower.
Munro told EYE: “There are lots of examples of agents receiving around 50% of a fee paid by their customers to connected services – in many cases the agent has added no value to the transaction.
“Transparency is the key issue here and many agents are still reluctant to disclose the existence of a referral fee, never mind the amount.”
The regulator’s year-old guidance says that under CPR, not revealing referral fees – for example in referring a client to a conveyancer – is “potentially a misleading omission on the part of the estate agent . . . This has a strong potential to affect a consumer’s decision whether to purchase that service or to look elsewhere”.
The guidance also says that under CPR, agents who do not disclose referral fees could face criminal prosecution.
It is understood that there have been no criminal prosecutions and some agents might see it as an anomaly that while referral fees have not been outlawed, it is already illegal not to disclose them.
Industry trainer and consultant Michael Day, who runs courses on CPR, believes that Trading Standards are looking hard at referral fees, particularly since the tenancy fees ban.
He told EYE: “The law is already in place.
“Whether referral fees are material information and therefore disclosable under CPR hasn’t been tested in court, but I have no doubt that it would be found to be material, and therefore omitting to tell a customer is an offence.”
Day alleged: “Like most CPR cases, they are not going to court – either agents are ‘buying off’ complainants or the Ombudsman is making awards – this way, the consumer gets the benefit of complaining.
“Trading Standards are trying to get agents to comply, but if they don’t, rather than instigate tons of prosecutions, they will move to remove the issue by banning fees.
“Agents have been warned.”
A survey on referral fees – which has come in for criticism and can easily be filled in several times by the same user, and not necessarily by agents – is here: