Katrine attests that agents should be prepared for a ‘crescendo’ of complaints because consumers were not aware of what they were buying through deposit replacement schemes. We agree.
In fact, we have voiced similar concerns for many months - clearly not relating to our own product - but by seeing the significant variances from other competitor propositions. Particularly those who elected not to take the route of FCA regulation (that’s the majority).
Here's the view of Jon Notley, CEO of Zero Deposit;
For many months, we’ve encouraged this level of scrutiny of deposit replacement, and more dialogue around the importance of FCA regulation. We strongly believe that the risks highlighted by Katrine and TPO will emerge unless this new market develops responsibly.
FCA rules exist to protect customers and the integrity of the market generally, including the reputation of those who distribute the products, in this case letting agents. Regulated products are required to offer good value and set out the risks to customers clearly before they purchase. Furthermore, letting agents are restricted in what they can do in promoting the product to ensure that it is not mis-sold. Worryingly we have seen unregulated providers position these restrictions as a disadvantage, when actually they are there to avoid tenants being sold a product that may not be suitable for them.
When you consider some of the unregulated schemes that have emerged, and the terrible value for money they can offer to tenants, or the absence of contractually binding guarantees for landlords, we are not surprised that the TPO is seeing complaints. Landlords will assume agents have done their homework on their provider. If one of these schemes were to fail or get caught up in scandal, potentially leaving landlords with no protection, any agent who is seen to have recommended such schemes could find their reputation in tatters.
This is a category that isn’t going away. We’re seeing a 48% month on month increase in tenants visiting our website and are close to covering 10,000 tenancies. Thankfully the majority of agents are embracing the regulated route, but those who do not risk serious consequences if these concerns materialise.
Why FCA regulation is important
Why Zero Deposit’s regulation solves this consumer awareness challenge
FCA regulation means that Zero Deposit is committed to fair and transparent communications with its customers.
From January-June 2019, 97% of respondents who purchase guarantees through Zero Deposit are aware of their obligation to pay fair claims. Of those who initially said they were unaware Zero Deposit contacted and confirmed this for the remaining tenants, giving them the option to switch to a traditional deposit once they properly understood, none accepted.
FCA regulation means that Zero Deposit has to be transparent and fair with all the information provided clearly and upfront, with no hidden terms. The FCA protects an agent's reputation by setting out rules designed to give confidence in the market. We are open to serious financial recourse from the Financial Ombudsman Service or FCA fines if we mis-sell a guarantee - especially those who haven’t understood what they’re buying.
Zero Deposit partner agents are allowed to introduce tenants and landlords to the service but importantly, agents are not able to sell the product but instead make tenants aware it is available and leave it to them to choose if appropriate. There are non-regulated products that are being sold to tenants, by agents, which we believe causes the issues highlighted by Katrine.
Zero Deposit invests in a comprehensive agent training programme to ensure they are compliant with our FCA obligations. They are supported with detailed literature that informs the tenant of their obligations.