Q&A with Eddie Hooker: is the use of EMIs by letting agents a problem?

In this video Q&A with Eddie Hooker, property writer and Head of Content at LandlordZONE, Nigel Lewis, talks to Eddie, who is the Founder and CEO of mydeposits,  about the use of EMIs by letting agents and the implications for client money protection.

Letting agents and property management agents in the private rented sector in England who hold clients’ money must, by law, join a ‘client money protection scheme’ such as the one which like mydeposits is powered by Total Property, Client Money Protect – the UK’s largest government approved scheme. 

This makes sure that landlords and tenants are compensated if the agent can’t repay their money if, for example, it goes into administration. 

As Eddie explains, one of the rules of client money protection, is that letting agents who are members of these schemes need to hold client money in a bank. Only UK-authorised banks, building societies and credit unions are protected by the Financial Services Compensation Scheme (FSCS) – a government fund that will pay money back to a bank’s customers if the bank goes bust. If one of these firms goes out of business, the FSCS will protect its customers’ money up to £85,000 per depositor. Crucially, the FSCS does not cover money held with EMIs.

Eddie says that while you could argue that money in an EMI is actually safer than it is in a bank – EMIs are innovative solutions allowing businesses to manage their money effectively and they have to have at least if not more money in security – the legislation hasn’t really caught up. The FCA cautions that, unlike insured bank deposits, money placed at an EMI (or an API) is at risk if a firm enters insolvency.

So what changes does Eddie think need to happen when it comes to EMIs and client money protection schemes? Eddie says that the schemes – CMP, RICS, Propertymark – all need to work in the same way. “The important thing is that we all need to be consistent. Otherwise, the schemes won’t all be offering the same degree of protection. Transparency is also key – letting agents should explain to landlords and tenants that they are with an EMI. It’s important that tenants and landlords ask questions and that agents explain in their terms of business that it is a third party controlling the money.”

Eddie would also like the Government to tighten up the legislation to define what a bank is, and suggests that letting agents who are using EMIs make sure that their membership scheme is aware of this if a problem arises.

Although Client Money Protect hasn’t yet had a claim involving an agent using an EMI, Eddie says that he has had experience of third party holders of client money that have gone bust. These have been fraudsters however, not EMIs. He credits EMIs with having innovated in response to banks not liking to issue client accounts.

Watch the full interview between Nigel and Eddie above. And for more discussion on whether agents without a formal bank account are in breach of CMP laws, and the limitations of existing and proposed legislation to address this, watch the video excerpt below from The Property Cast, hosted by Eddie and Founder of Landlord Action, also powered by Total Property, Paul Shamplina, with special guest, David Smith, Head of Property Litigation at JMW Solicitors, and legal advisor to the NRLA.