13Dec

FCA says it believes that rent to own price cap has been effective in reducing prices

The Financial Conduct Authority has claimed that its price cap for rent-to-own products has delivered significant cost savings for consumers since it was first introduced in April 2019.

The FCA says that the average prices charged by the two largest firms in the sector have fallen by 19%. It also claims that the highest prices being charged in the market have fallen by 36% – prior to the cap some firms’ financing prices were 3.6 times the average retail price of the goods, but this has now fallen to 2.3 times average retail price. It says that these reductions are in line with what it expected to see when the cap was proposed.

The regulator adds it has seen no evidence of firms increasing other prices and charges to compensate for revenue lost as a result of the price cap.

The FCA’s statement concludes by saying:

“We continue to supervise high-cost credit firms carefully and the consumer credit market remains a key priority for the FCA.”

The price cap requires that:

  • Total credit charges do not exceed the cost of the product
  • The cost of products is ‘benchmarked’ against the prices charged by three other retailers. Only one of the three can be a catalogue credit retailer, and the other two must be mainstream retailers. Firms are unable to charge more than the median average of the prices offered by these retailers (if one of the three was a catalogue credit firm), or the highest of the three prices (if none of the three was a catalogue credit firm)
  • Customers are not charged higher prices for insurance premiums, or for going into arrears, purely with the aim of recouping reductions in revenue caused by the price cap. If a firm wants to raise its charges, it must prove that this is a legitimate business need

Rent-to-own products are included in the programme of assistance announced by the FCA for borrowers who have been affected by coronavirus. Borrowers have until March 31 to apply for payment breaks – they can receive six months’ worth of payment deferrals, and anyone who already has a three-month payment deferral can apply for an additional three-month holiday. Deferrals can last until July 31, provided these payment breaks cover consecutive payments and cover no more than six payments in total.

Areas of concern the FCA has identified in the rent-to-own market in the past include:

  • Firms failing to carry out adequate affordability checks
  • Some customers being charged late fees for arrears on their insurance contracts, even though this was contrary to the firm’s own policy
  • Some customers being required to pay for insurance before receiving any goods
  • Other customers not receiving a refund of their first payment where their agreement with the firm was cancelled before the goods were delivered

 

Scott Robert are compliance consultants delivering solutions to regulated businesses.