One in five private tenants say their landlords have kept all or part of their deposit unfairly.
Tenants see £20.1m disappear
The report from Shelter concludes that each year at least 127,000 tenants have difficulty in getting their money back, and £20.1m of deposits are wrongfully withheld.
In total the report's authors estimate that £800m of tenants' money is held by landlords without any legal protection.
Students seem especially prone to falling victim to avaricious landlords, according to Shelter and the National Union of Students (NUS).
The NUS and Shelter estimate that over 35,000 students risk having part or all of their deposit withheld unfairly this summer as they move to new accommodation, return home or leave the area for work.
Currently the only way people can get their money back is by issuing court proceedings.
Shelter say that many people simply write off the loss of their money, because this process is too costly, slow and daunting.
Ben Jackson, Director of External Affairs at Shelter, said:
"Each year tens of thousands of people lose out to this scam and are often forced into crippling debt to pay the next deposit. A few even face the extreme outcome of homelessness."
New housing bill
As a result, Shelter has joined forces with Citizens Advice Bureaux and the Association of Residential Letting Agents to press the government to include a national tenancy deposit scheme in the forthcoming Housing Bill.
In May, some groups representing letting agents and surveyors agreed to a host of Office of Fair Trading recommendations to make private tenancy agreements fairer.
In future, the tenant will no longer be duty bound to pay for any item damaged or destroyed during the course of the tenancy, regardless of fault.
What is more, tenants will no longer be forced to automatically pay for professional cleaning of the rental premises without being given an opportunity to clean-up the property to a high standard themselves.