Proptech firm PayProp have stated that the automation of rental payment administration can reduce the incidence of rogue letting agencies withholding client money for dishonest reasons.
The firm says that the use of payment systems can increase transparency, as it provides an automatic, unalterable digital record.
Increased regulation and automation to combat fraud
This claim by PayProp follows the recent confirmation that membership of a Client Money Protection (CMP) scheme is to become compulsory next April. This development follows the discovery of a number of fraudulent activities by letting agencies, resulting in those agencies being expelled by the Property Ombudsman.
CMP schemes protect landlord and tenant money in the event an agency goes out of business or misappropriates the funds.
Fines will be introduced from April 2019 for agencies that aren’t members of an approved scheme. They may be charged up to £30,000. For agencies that don’t display the details of their CMP scheme membership on their website and in their office, they will be dined up to £5,000.
Landlords and tenants still losing significant sums of money
Earlier this year, the Property Omsbudsman Scheme made the announcement that three agencies had been expelled for various payment issues. These issues included one agency withholding over £12,000 of rent, and another not putting a deposit in a protection scheme, amongst other failings.
The expulsion of another agency was due to it making no record of a £1,375 deposit and advance rent payment, which it subsequently withheld.
Neil Cobbold, chief operating officer of PayProp in the UK, said: “Cases of rental payment fraud are relatively rare, but there are still too many examples of landlords and tenants being left out of pocket by unscrupulous letting agencies.
“These are significant sums of money for consumers so there should always be documentation and evidence of all payments received by agencies.”
Automated payment systems can reduce letting agency fraud
Agencies need the right systems to manage payments
Cobbold went on to add: “The introduction of mandatory CMP membership for agencies will be a crucial step towards reducing the chances of rental payment fraud occurring. This much-needed regulation, combined with an increase in adoption of automated rental payment systems, can improve transparency across the rental sector.”
Around 80% of agencies are thought to already be members of an approved CMP scheme, which leaves approximately 3,200 firms that need to register with one before April 2019.
He also stated: “Mandatory CMP will ensure that consumers’ funds are protected, but it’s also important that agencies have the systems in place to manage payments efficiently and accurately.
“An automated, bank-integrated payment system allows agents and landlords to see the live status of a portfolio, providing digital reconciliation which can be vastly more accurate.”
A reduction in fraud can boost the whole industry
“The prospect of reduced rental payment fraud through the introduction of mandatory CMP scheme membership and increased digitisation of payments can boost the whole industry,” Cobbold continued.
“It can contribute towards improving the public perception of letting agencies with fewer negative headlines in the mainstream press. Tenants and landlords, meanwhile, can continue to operate safe in the knowledge that their money is protected.”
“Increased regulation of the rental sector combined with effective utilisation of PropTech can help letting agencies to thrive and become more profitable in a market that continues to grow rapidly,” he concluded.
PayProp is a bank-integrated automated payment platform, which, since launching in the UK in 2015, has grown to manage the payments on more than 23,000 active tenancies.