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Supplier calls for code of conduct to halt mis-selling of zero-deposit schemes

Observer newspaper found six tenants across the UK who claim they were coerced into signing up for policies

Richard Reed

Link to Lettings feature

A leading insurer has called for an industry code of conduct in the wake of claims of mis-selling of zero-deposit insurance schemes.

Agents came under fire in The Observer for allegedly forcing tenants to sign up to zero-deposit insurance schemes.

The newspaper claimed it had uncovered evidence of pressure-selling tactics by some agencies in England – including cases where people were told they were required to sign up as a condition of securing a tenancy.

Zero-deposit plans have become popular with agents and tenants alike, as it avoid tying up the large sums of money required for traditional deposits.

Agents earn commission for each prospective renter they refer, which has led to pressure-selling allegations and warnings of a potential PPI-style mis-selling scandal.

Link to Tenant Deposits featureNow Sam Reynolds (pictured) chief executive of Zero Deposit – a regulated insurance provider – has called for the industry to crack down on mis-selling.

“We are at the point where enough is enough. We are calling for a code of conduct across deposit alternatives that makes FCA regulation and consumer protections mandatory.

“We have long warned of the risks of certain unregulated alternatives and we are seeing that in practice, in terms of pressure selling, unfair pricing and punitive charges at the end of tenancy.”

‘preferred option’

The newspaper said it had spoken to six tenants who had rented properties in different parts of the country, through different agencies, but who all said they were either given no choice or pressured by agents into signing up.

One woman interviewed by the newspaper, a student renting in London, told the reporter she felt “coerced” into signing up for a zero deposit scheme despite having enough cash for a full deposit. She had been told by email that it was the landlord’s preferred option.

“The implication was that if we didn’t say yes, the agency would choose someone else,” she said. “We had to pay £170 each in non-refundable fees. But after weeks of looking for somewhere to live we didn’t really feel in a position to negotiate.”

Some tenants have also complained of having to cough up stiff fees at the end of a tenancy if they want to challenge a deduction.

Compulsory regulation

Reynolds said Zero Deposit partners with more than 2,500 agent branches and has helped over 105,000 tenants move in.

“Since launch in 2018, we have had just one complaint of pressure selling, where we immediately offered to refund. Our partners have upheld the highest standards and selected Zero Deposit because of regulatory safeguards.

“A strong, competitive market is only good for deposit replacement schemes but uplifting standards is essential. Now is the time to do it.”

How a code of conduct would work

The Deposit Replacement Code of Conduct would, according to Zero Deposit, seek to cover:

  • Adoption of FCA regulation across the industry; ensuring that firms treat customers fairly, act with integrity, skill, care and diligence and manage conflicts of interest.
  • Comprehensive and appropriate protections for the tenant & landlord across the rental experience (specific to deposit replacement).
  • Positive support and guidance for letting agency partners (specific to deposit replacement). A commitment to a vetting and checking approach, where deposit replacement providers review and assess the actions of letting agency partners
  • Minimum standards for recovery action, in line with existing FCA requirements, including the protection of vulnerable customers.
December 6, 2022

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