A price cap is set to be introduced on the rent-to-own sector in an attempt to stop vulnerable consumers being charged hundreds of pounds over the odds in their monthly payments on essential household appliances.
The Financial Conduct Authority (FCA) said the 100 per cent cap – which would limit credit charges to no more than the cost of the product – would provide protection for what the FCA described as some of the most “financially vulnerable” people in the UK. Once in force, the cap could save about 400,000 consumers up to £22.7m a year.
Companies lease items such as cookers, washing machines and fridges to householders who are unable to afford to buy them – but at a huge premium. By the time their deal has come to an end, the FCA said, some customers have paid four times more than the product originally cost.
Consumer groups welcomed that move, which comes after the FCA clamped down on payday lenders – but warned sectors such as unauthorised overdrafts and logbook loans should also be looked at.
Citizens Advice Scotland spokeswoman Ruth Mendel said: “Accessing goods through a rent-to-own store can have a very negative impact on consumers, particularly vulnerable people, when they are mis-sold goods or cannot afford repayments.
“We would also welcome more work being undertaken to explore alternative avenues to ensure that consumers can access affordable credit when they need it.”
The FCA said of customers who use rent-to-own companies only one-third are in work while most who are employed are on low incomes of between £12,000 and £18,000 and are likely to have missed a bill payment in the last six months.
The report said: “Despite this, firms often charge these customers more than other retailers for essential household goods such as a washing machine or a cooker, and with add-on insurance and warranties in some cases RTO customers can pay up to four times the average retail price.”
Sarah Nield, director of financial services risk and regulation at PwC, said: “The FCA’s proposed price cap for rent-to-own products is the latest example of the regulator taking a tough stance on high-cost short-term credit to protect borrowers from excessive charges.”
Andrew Bailey, chief executive of the Financial Conduct Authority, said: “Today’s measures are designed to bring down very high prices in the rent-to-own sector, which is used by some of the most financially vulnerable in our society. A cap will prevent firms charging over the odds for essential everyday items like cookers or washing machines. We believe a cap is the only intervention that will effectively tackle the highest prices.”
If agreed, the new rules will be implemented from 1 April next year.