Price cap on rent-to-own goods possible, says FCA

A price cap to help consumers who use "rent-to-own" firms to buy goods is a possibility, the head of the City regulator has said.

Andrew Bailey, the chief executive of the Financial Conduct Authority (FCA), said a cap would be considered as part of its inquiry into high-cost credit.

Up to 400,000 people use rent-to-own firms to buy household appliances, paying the money back over three years.

After interest, they can end up paying three times the original price.

It follows a call for a cap from Citizens Advice, which said restrictions imposed on payday lenders two years ago had been a success.

Citizens Advice also said there was a lack of affordability checks in the industry, meaning that people signed up to agreements they could not afford.

And it said that rent-to-own firms did not always take a flexible approach when shoppers got into debt.

However, BrightHouse, the biggest rent-to-own firm, accused Citizens Advice of producing a "misleading" and "inaccurate" report.

Price cap impact

The FCA said that it would be prepared to consider a cap in the rent-to-own market, but added that in the case of the payday loan sector it had been a "last resort".

"The price cap is very much the thing we do when all other price measures don't look very promising," Andrew Bailey, chief executive of the FCA, told the BBC.

"So we would start elsewhere, and work our way through the possible remedies."

Payment example: Hotpoint Fridge-freezer

• Base price: £416.99

• Delivery and installation: £55

• Service contract (compulsory): £116.76

• Total price: £588.75

• 156 weekly payments of £7.50

Total paid (including credit): £1,170 Source: BrightHouse

Since January 2015, the FCA has imposed a cap on the amount that payday lenders are allowed to charge their customers.

Loan repayments are limited to no more than 0.8% per day of the amount they borrowed, and in total no one should pay back more than twice the original sum.

Since the introduction of that cap, Citizens Advice says that the number of people with payday loan debt problems has halved.

So it wants similar controls on the rent-to-own market.

BrightHouse, the biggest firm in the market, says it does undertake affordability checks

"There ought to be some kind of cap on the cost to the individual of the item they are buying, so they know right up front how much they are going to pay," said Gillian Guy, the chief executive of Citizens Advice.

In the 18 months since the cap was introduced, about 800,000 fewer people took out payday loans, according to the FCA.

Affordability

Citizens Advice also wants to see new rules that would require rent-to-own firms to do more thorough affordability checks.

Dawn North, from Port Talbot in South Wales, is a regular customer of such firms, and has fallen behind with payments.

"They didn't really do a credit check," she said.

"All they wanted was your income and what your expenditure was."

She showed the BBC a washing machine, which she said cost £300 in the shops. However, because she has fallen behind with payments, she calculates she will end up paying as much as £3,000 in total.

But BrightHouse, the biggest of three rent-to-own firms in the UK, rejected the claims made by Citizens Advice.

"We dispute the findings of this misleading, deeply flawed and inaccurate report," a spokesperson for BrightHouse said.

"Having worked closely with the FCA, BrightHouse's affordability checks are some of the most thorough in the financial services industry."

"Should BrightHouse customers be in difficulty, we have a wide range of options including the flexibility for them to return the product at any time without owing anything further."

It said all agreements were subject to a 14-day cooling-off period.

'Fair terms'

The FCA is now asking for evidence for its inquiry into all forms of "high cost" credit, including overdraft charges and logbook loans.

It will also review the payday loan cap, two years after it came into force.

Mr Bailey told the BBC that catalogue lending and pawnbroking would also be considered.

It is important that people can still have access to credit, but the FCA wants them to have it "on terms that are fair to them", he said.