FCA to Introduce a Price Cap to be Introduced on Rent-to-own Goods

By: Submissions

The Financial Conduct Authority will be introducing a price cap on rent-to-own goods from April 1st this year. The FCA are hoping that the price cap will save consumers in the UK around £22.7 million every year on the cost of products that are of everyday use such as fridges, cookers and televisions.
 
According to reports, in certain cases, consumers of rent-to-own goods are currently paying in total around 4 times more than the price of the good itself. The FCA hope to introduce the price cap to ensure that credit charges are unable to be more than the cost of the product itself. As well as the price cap, firms will have to benchmark their prices, such as delivery and installation, against the prices that are charged by three mainstream retailers. This benchmark will prevent firms from significantly rising their prices to get back the profits that they may lost from the cap on their prices.

Additionally, the FCA have been investigating into the high-cost credit sector in general, in addition to options that could be an alternative to high-cost loans. Due to large numbers of complaints from charities over people being left with outstanding debts, they have already introduced a cap on payday loans to 0.8%.

This was introduced in January 2015 and has significantly increased competition in the industry, with some of the largest companies exiting and new, alternative products entering the market. This includes companies offering flexible overdrafts, guarantor options and flexible instalments like those from Cashfloat, QuickQuid.

The executive director of strategy and competition for the FCA, Christopher Woolard, has said that the actions they are taking build on their wide work on high-cost credit and also, will be able to save some of the customers in the UK who are very vulnerable millions of pounds. He also said that the price cap has been implemented so that they are able to target some of the highest prices in the whole of the rent-to-own market.
 
Christopher Woolard has stated to the Press Association that a cooker could end up costing a consumer around £1,700 from a rent-to-own provider, even though it would normally be retailed at between £480-£500. With the addition of the price cap that is being brought in, customers would see their costs fall by around £700.
 
Woolard has also claimed that they are working to try to expand the options for people outside of the rent-to-own sector. An example of this is that some retailers and credit unions are trying to offer reasonable rates of interest on white goods. As well as this, there have been discussions taking place surrounding upcycling and recycling schemes for housing associations. The Financial Conduct Authority will review their price cap in 2020 and will aim to keep an eye on the compliance of firms with these new rules. The FCA would be willing to intervene and add new rules again should it be needed.
 
They have stated that the some of the most financially challenged people in society are rent-to-own customers. Most of these people are on low incomes of between £12,000 and £18,000, they are likely to have missed a bill payment in the last 6 months as well as the fact that around only 1/3 of all of them are in work. Despite these figures, the firms often charge these people more than other retailers for goods that are essentials such as washing machines.

By Daniel Tannenbaum

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