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The FCA proposes a price cap on rent-to-buy firms
The chief executive of the Financial Conduct Authority (FCA), Andrew Bailey, has suggested a price cap on rent-to-own firms in order to help the consumers who use them to buy household goods. He said that a cap would be considered as part of their inquiry into high-cost credit.
These firms allow consumers to rent items before buying providing customers with around three years to fully pay back the money. Currently, it is estimated that up to 400,000 people use these sort of firms to buy goods such as sofas, beds and white goods for their houses.
These companies work on a form of high interest credit where you pay the cost of the item over three years with interest added. The FCA has found that in some cases, this interest adds up to twice the price of the original item cost.
The findings and suggestions from the FCA come after a call for a cap from Citizens Advice who referenced the success of the cap on payday loans lenders. They feel that there is a lack of flexibility to these loans and with affordability check levels low, some people are signing up for agreements they simple cannot afford.
The FCA have decided on a slightly more cautious and pragmatic approach when discussing the cap by stating that it had been a last resort for the payday loans industry. Mr Bailey spoke to the BBC regarding this issue; “The price cap is very much the thing we do when all other price measures don’t look very promising… So we would start elsewhere, and work our way through the possible remedies.”
However, Citizens Advice argue that when customers miss a repayment or fall into any sort of debt, the lack of flexibility and high interest means that debt levels quickly spiral and consumers are increasingly left with no help or advice. As a result, similar controls on the rent-to-buy market to those currently on the payday loans market are being asked for.
Citizens Advice campaigned for a cap on the payday loans market for repayments of no more than 0.8% per day of the borrowed amount as well as only twice the original sum being paid back overall. This cap was imposed in January 2015 and it has seen the number of people reporting problems with payday loans halve.
In addition to a cap on interest rates and the amount to be paid back, Citizens Advice want to these firms to be required to carry out more affordability checks. They feel that doing this would decrease the likelihood of people being unable to pay because the lender will already have checked that they have an appropriate way to repay.
One of the biggest rent-to-own firms, BrightHouse, replied to the comments from Citizens Advice to reject them. A spokesperson for the company spoke to the BBC in regards to this; “We dispute the findings of this misleading, deeply flawed and inaccurate report… 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.”
The FCA are currently collecting evidence for their inquiry into high cost credit including rent-to-buy companies, overdraft charges, logbook loans and a review of the payday loans cap. You can submit your evidence to them via email or by visiting their website.