Regulator Announces Cap on Rent-to-own Charges
November 23, 2018
Companies that provide credit-based services referred to as ‘rent-to-own’ offerings are to be hit with a cap on the amounts of money they can charge their customers.
The Financial Conduct Authority (FCA), which is the main regulator of all aspects of the UK’s financial services industry, has said the cap will come into effect from April 2019.
Explaining the reasons behind its decision to clampdown on rent-to-own companies, the FCA has noted that only a third of consumers in the sector are in work and a majority are on low incomes of between £12,000 and £18,000 per annum.
It also pointed out that most rent-to-own customers around the country will have fallen behind on their payments at some point within the past six months.
The rent-to-own sector has become controversial in recent years because the arrangements entered into by consumers can often lead to significant financial difficulties and a worsening of debt problems.
For the most part, the industry’s activities involve the provision of household appliances on the basis of credit deals that give consumers upfront access to products they want or need but also locks them in to what can eventually prove to be very expensive financial arrangements.
The FCA has said that the intention of its cap is to protect some of the most financially vulnerable people in the UK and that its measures, once introduced, will save consumers a collective total of around £22.7 million per year.
The cap will limit both the amounts of money that a company can charge for a given product and the scale of interest it can charge its customers in the context of any rent-to-own arrangement.
“A cap will prevent firms charging over the odds for essential everyday items like cookers or washing machines,” said Andrew Bailey, the FCA’s chief executive. “We want to stop consumers having to pay many multiples more than the price of a product on the high street.”
Gillian Guy, chief executive of Citizens Advice, has welcomed the decision by the FCA to introduce a cap on rent-to-own charges and insisted that all such deals are designed specifically to target people with very limited financial flexibility.