A cost cap on rent-to-own products is likely to come into force by April 2019, and national charity Citizens Advice has calculated that the cap could save consumers an average of £276 per product. Across the board it believes total cost savings of £62 million could be achieved.
The charity also found that found 25% of people who had purchased a product via rent-to-own were unaware the total amount they would have to repay.
Gillian Guy, Chief Executive of Citizens Advice, said:
“By 1 April 2019, it will have been 853 days since the FCA launched its high-cost credit review. Until a cap is introduced, consumers will continue to pay over the odds for these high-interest products.
“Caps can work, we’ve seen this with payday loans where thousands of consumers have been protected by the FCA and are now better off as a result.
“The FCA has recognised the massive harm caused by the high interest rates on tempting rent-to-own deals. It should now stick to its own deadline to implement a cap. No one should have to pay more than double what they borrow.”
The Financial Conduct Authority (FCA) unveiled a variety of new proposals relating to various parts of the high-cost credit sector in June 2018. The consultation on these plans ends on August 31 2018.
Regarding rent-to-own, the proposals include:
- Banning firms from selling extended warranties at point of sale
- Considering a formal price cap on rent-to-own prices
At this stage, the FCA has not confirmed that a price cap will definitely be introduced, nor has it given details of the level of any cap. However, it does say that changes could be introduced in the rent-to-own market by April 2019.
The regulator notes that rent-to-own costs can be very high, and that it has seen examples of consumers needing to pay more than five times the amount that the same goods would cost if bought on the high street.
Citizens Advice’s response to the consultation has proposed a 100% cost cap on rent-to-own goods, and a limit of £15 on late payment fees.
The FCA has taken action against three large rent-to-own firms in recent months. In the latest instance, a firm which provides household goods to customers on hire purchase agreements was required to pay refunds totalling £2.1 million to some 37,000 customers. The redress will be paid as a mixture of cash payments and balance refunds.
The FCA’s investigations identified that the firm was failing to carry out sufficiently rigorous affordability assessments before allowing customers to purchase goods on credit and was therefore providing some of its customers with loans that they could not afford to repay.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article