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Price cap on ‘rent to own’ (RTO) agreed for April 1, 2019

Thursday, 22nd November 2018

The Financial Conduct Authority (FCA) have said a price cap on the rent to own sector will come into force on April 1, 2019, providing consultation is agreed which closes on the 17 January 2019.

Once implemented it will save around 400,000 consumers up to £22.7m a year from excessive charges.

How will the proposed cap work?

The cap is a bespoke and designed to fit the RTO market and broken down into two parts.

Under the proposed cap, credit charges cannot be more than the cost of the product itself. For example, if a fridge/freezer cost £600 to buy then the cost of the credit (all interest and charges) should not exceed £600, making the total payable no more than £1,200.

In addition, RTO firms will need to benchmark the cost of products against the prices charged by 3 other retailers, the middle price - of three mainstream retailers.

The FCA quotes examples where people have paid over £1,500 for essentials like an electric cooker, which could be bought on the high street for less than £300.

What is ‘rent to own’ (RTO)?

Rent to own is a scheme whereby a customer can buy washing machines, cookers, tvs etc without having to pay all the money up front instead they pay a small weekly or monthly sum until they own the product outright. This can take between one and three years after which they will then own the product.

The markets leaders for this type of trade are BrightHouse and PerfectHome, both operate online, and in stores.

BrightHouse ordered to pay 15m compensation to 249,000 customers

How do you fancy paying back your debts by watching television?

Changes with extended warranties

These are usually offered at the point of the sale as the customer is about to pay for the goods.

The FCA is to introduce a 2-day cooling off period for the sale of extended warranties. This will effectively ban firms from selling these warranties at the point of purchase. This will come into force on 22 February 2019.

Andrew Bailey, Chief Executive of the Financial Conduct Authority 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. A cap will prevent firms charging over the odds for essential everyday items like cookers or washing machines. 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.'

Mike Thomas, Founder of DebtWizard.com said:

“In my view this cap is long overdue, rent to buy has proved to be very expensive for those people that need to resort to this type of borrowing. It is not uncommon for someone to pay up five times as much for an item that could be bought from the High Street or online. This cap will help reduce the level of interest and charges that previously applied meaning their debts will not spiral out of control.

I note that the FCA estimates the saving to customers will be £22 million, I look it at another way, that’s a £22 million loss per year to the ‘rent to own’ industry, what with new restrictions to be added on warranties, my question is how will the stores absorb such a loss, will we see some exit the market?

Well done with this cap, let's now see a cap for bank overdraft charges and credit card debts.”

Full FCA press release here (external website) 








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