FCA proposes price-cap on rent-to-own to protect vulnerable consumers

Written by Oliver Wade
22/11/2018

The Financial Conduct Authority (FCA) has today proposed to introduce a price cap on the rent-to-own (RTO) sector.

The cap is subject to consultation but, if approved, will come into effect from 1 April 2019, providing protection for “some of the most vulnerable people in the UK”. Once in force, the authority has estimated that consumers will benefit from a saving of up to £22.7m per year.

RTO consumers are some of the most financially vulnerable consumers in today’s society, with only a third in work and many on low incomes averaging between £12,000 and £18,000, while also being the most likely to have missed a bill payment in the last six months.

Despite this, firms often charge these customers more than other retailers for essential household goods, such as a cooker or a washing machine. When also taking add-on insurance and warranties into consideration, RTO customers can pay up to four times the average retail price on these appliances.

To combat this and provide further protection for consumers, the FCA has designed a bespoke price cap to fit the RTO market, limiting both the cost of the product and the charge for credit. In compliance with the proposed cap, credit charges cannot be more than the cost of the product, while RTO firms will be required to benchmark the cost of products against the prices charged by three other retailers.

Commenting on the initiative, FCA chief executive Andrew Bailey 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.

“We believe a cap is the only intervention that will effectively tackle the highest prices. If implemented, it will save consumers up to £22.7m a year from excessive charges.

“'We want to stop consumers having to pay many multiples more than the price of a product on the high street. These changes build on the measures we have already taken across the high-cost credit sector.”

Also commenting, StepChange head of policy Peter Tutton added: "We are pleased that the FCA is addressing rent to own, where the high cost of goods and add-on warranties can make agreements expensive even compared to other types of high cost credit.

"The most financially vulnerable households cannot be left with no choice but the highest price on the high street. Fundamentally, we also need better alternatives for households who struggle to afford household needs, such as the cost of mending or replacing necessary household appliances."

The authority has announced that the consultation on the price cap and benchmarking proposals will be open until 17 January 2019.

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