Controversy surrounds Deposit Alternative schemes as probe begins

The Competition and Markets Authority’s in depth investigation into the controversial deposit alternative concept has been welcomed by one of the sector’s suppliers.

Last month the CMA announced that it would provide updated guidance for lettings agents so that both tenants and landlords could be clear about their own rights and responsibilities. 

The CMA said it had also identified “areas of concern” relating to five specific issues - the first that it named was “zero deposit schemes.”

This is not the first time such schemes have become high profile.

At the end of last year The Observer newspaper claimed that some agents were flouting the ban on tenant fees by effectively obliging renters to sign up to such schemes as a precondition for their tenancy. 

And in 2020 the Citizens Advice questioned whether renters fully understood the “deposit replacement” concept compared to traditional government-backed tenancy deposit schemes.

Just before the weekend one such deposit alternative scheme - Zero Deposit - welcomed the CMA announcement that had been made a week earlier.

Zero Deposit chief executive Sam Reynolds says: “I wholeheartedly welcome the move by the CMA to improve standards in order to tackle unfair practices in the markets, particularly within the deposit replacement category. 

“Despite growing proof of the impact of these poor practices, very little has changed and in some areas, such as protecting vulnerable tenants at the end of tenancy, it’s getting significantly worse.

“The CMA certainly have their hands full. We have long called for improvements to standards within the deposit replacement market and have lobbied the sector for some time for a comprehensive code of conduct, which in consultation has received support from lettings agents and landlords. 

“This must now be introduced as a matter of urgency to protect unsuspecting tenants from being exposed to bad practice.

“I believe the poor practices outlined in the initial review are entirely driven by commercial benefit, not what’s in the best interest of the tenant and such practices would face regulatory scrutiny.”

Reynolds claims hundreds of thousands of pounds are invested each year to ensure his firm’s products “meet and exceed regulatory standards” and have only “a small upfront fee” plus a cooling off period and “a clear and transparent sales journey that allows [renters] to make a fully informed choice without pressure and interest free payment plans on any liability.”

The CMA says that in addition to deposit alternatives the other rental sector issue it will investigate are sham licences, onerous guarantee clauses, possible unlawful discrimination, and retirement housing fees.

“These warrant further investigation and we stand ready to take enforcement action if needed” says the authority.

It continues:"While many landlords and letting agents are providing a good service, initial engagement by the CMA heard many complaints raised by stakeholders suggesting that a significant minority are not complying with consumer protection law. 

"To help letting agents understand their obligations, the CMA will update its guidance for lettings professionals. If any letting agency or landlord is found to be in breach of the law, then the CMA does not rule out launching enforcement action.