The Government has been warned that steps must be taken to stop agents who lose income as a result of the fees ban from dipping into client funds to try and keep their businesses afloat.

Specifically, says ARLA Propertymark, the mandatory requirement for all letting agents to offer Client Money Protection should come into force either before, or at the same time as, the ban.

It has told the Government: “We recommend that the requirements to join a CMP scheme are introduced from April 2018 with enforcement commencing from April 2019 so that CMP comes into force either before or at the same time as the ban on tenant fees.

“This is to ensure that consumers are protected should an agent use their client funds to try and keep their business afloat once they lose their tenant fees.”

The recommendation is part of ARLA’s response to the Government’s plans for mandatory CMP.

Elsewhere in its response, ARLA says that any tenant or landlord wanting to make a CMP claim should be required to report it to the police and request a crime number.

It says: “This will ensure that the police do not see the matter as a civil offence when it comes to prosecution and will allow the scheme operators to make claims against the agent under the Proceeds of Crime Act 2002.”

ARLA also proposes that any agent breaching the requirement to belong to a CMP scheme should be fined up to £30,000 and given a banning order.

ARLA also says that CMP providers should have to deliver minimum cover:

  • £25,000 to reimburse a tenant or landlords for loss of rent of deposit
  • £500,000 on a claim made against any single company or agency

In addition:

  • Schemes should prove they can pay out up to £5m a year
  • Schemes should be able to cover the possibility of 100 agents going out of business each year
  • Landlords should only be able to claim up to three months of missing rent, on the basis that landlords should take some level of personal responsibility for checking they have received rent payments from their agent
  • Any agent expelled from one CMP scheme should not be able to join another

As far as the actual operation of the schemes goes, ARLA says:

  • All client funds should be deposited into a specially designated account at a bank or building society, which should be kept separate from the firm’s own money
  • Each transaction would have to be first recorded, then monitored and reconciled
  • Firms should have Professional Indentity insurance to cover theft by staff

The ARLA response says that CMP schemes should be market-led with more than one scheme available, to offer competition, and all regulated by the Government.

A single scheme, one of the Government’s proposed options, could lead to agents paying a much higher CMP levy.

ARLA says that similar to the existing tenancy deposit protection and redress schemes, there should be a tendering process with five-year contracts.

Only government-approved schemes should be allowed to provide CMP.

The schemes should be required to cover loss of rent; other funds held by agents such as floats to pay for repairs; and unprotected deposits.

The schemes should also be required to cover any deductions from deposits that are due to the landlord.

Currently, says ARLA, insurance-backed deposit schemes pay out any money due to the tenant but not to the landlord if the agent has misappropriated the deposit money.