Housing minister Mark Prisk is backing the first step to regulate rogue letting agents with a new last-minute law.
He has added a regulation to the Enterprise and regulatory Reform Bill that forces letting agents to join an approved redress scheme.
The scheme will investigate complaints and will have the power to demand compensation for landlord and tenants.
The main aim is to improve standards in the industry by minimising the chances for cowboy letting agents to take rent and deposit money they hold for landlords and tenants.
In recent years, dozens of letting agents have stopped trading and left their customers with financial problems and without any way of getting their money back.
Although estate agents are regulated, letting agents can start trading without any official registration or qualification.
Not full regulation
The industry handles around £14 billion a year in rents and deposits, according to the Property Ombudsman Christopher Hamer, with £1 billion going in fees to letting agents.
Many have poor business skills and dip in to money held for clients to keep ailing firms going, while other letting agents succumb to theft and fraud.
Although signing up to a redress scheme is not full regulation of the market, the minister has stopped short of supporting another amendment introduced by Baroness Hayter. She urged MPS to give the Office of Fair Trading more powers to police letting.
“In discussion with the housing minister, I was aware that he fully understood that regulation of letting agents was a relevant issue,” said the ombudsman.
“While full regulation is not yet on the agenda, the introduction of compulsory redress brings about a level playing field for the industry and it will mean that a consumer has access to independent dispute resolution regardless of which agent they use.”
