Robin Walker has strongly welcomed the news that a price cap to be implemented on so-called ‘rent-to-own’ goods is expected to come into force this April to protect some of the most vulnerable customers in the UK.
Currently, rent-to-own businesses and companies operate by providing goods on a ‘have now, buy later’ model, allowing shoppers to purchase items- often household essentials such as fridges or washing machines- by entering a contract to pay a fixed and regular sum over a period of one to three years, rather than a lump sum upfront.
Though, in theory, this may seem a reasonable and pragmatic approach to purchasing expensive yet essential items, many of these companies operate by charging high levels of interest, making the overall cost of the product far higher than the initial retail price. In some cases, the RTO found that consumers were paying more than four times the retail price of some goods.
Robin is pleased that the cap is intended to tackle these high prices – potentially helping save vulnerable customers hundreds of pounds. In addition, the FCA will review the impact of the price cap in 2020 and will determine if any further interventions are necessary. The FCA has stated that rent-to-own consumers are often financially vulnerable and are likely to be on low incomes of between £12,000 and £18,000, to have recently missed a bill payment, and just a third of these people are in work.
From next month, the following rules will kick in:
• Interest will be capped at 100% of the product price
• Firms will be required to benchmark base prices (including delivery and installation) against the prices charged by three mainstream retailers.
• Companies will no longer be able to increase their prices for insurance premiums (e.g. theft and accidental damage cover), extended warranties, or arrears charges, to recoup lost revenue from the price cap.
As Worcester MP and in his former capacity as a member of the Select Committee for Business, Energy, and Industrial Strategy, Robin has been a long-term advocate for a price cap on rent-to-own goods, and is pleased to see this positive impact of his advocacy.
As he celebrated the news, Robin said:
“Today’s announcement is a step in the right direction, and is one that will help households in Worcester ensure that their finances are as resilient as possible.”
“As a backbencher this was one of my key priorities and I welcome the various measures taken by the Government to regulate pay-day lenders in order to protect consumers from the overwhelming debt that can occur from crippling interest rates, or in circumstances when an installation is late or unpayable.”
“It is important that the FCA, move forward with its proposals on high cost credit—including a rent-to-own price cap — as quickly as possible, and consider similar protections.”
“This move links in with the broader campaign for Affordable Credit, and ensures that those who find themselves in a position of debt can more easily manage it, and get themselves out of that debt quicker. I value the work undertaken by the likes of the Money Advice Service and the Citizen’s Advice Bureau in Worcester and the benefits of free, timely and impartial debt advice to my constituents.”
“I am delighted by this announcement and look forward to further measures being implemented in the future to keep extortionate lending services at bay, and protect those who use these services.”
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:
“The actions we are taking today build on our wider work on high-cost credit and will save some of the most vulnerable consumers in the UK millions of pounds. This price cap has been designed to target some of the most excessive prices in the rent-to-own market.”
“The measures come into force from 1 April and we will be keeping a close watch on firms’ compliance. We will review the impact of the price cap in 2020 and if further work is needed to protect these customers we are prepared to intervene again.”
Gillian Guy, Chief Executive at the FCA said:
“The FCA has recognised the massive harm caused by the crippling interest rates on rent-to-own deals. This cap will stop people from paying over the odds compared to similar products on the high street and falling into further debt when costs spiral out of control.”
“Our evidence has repeatedly shown well-designed caps can reduce the harm high-cost credit can cause. Where these credit products cause more harm than good, for example doorstep loans, the FCA should move to introduce similar protections.”
Notes to editors
For more information on the Financial Conduct Authority, please see: https://www.fca.org.uk/
For details of the consultation on a debt breathing space scheme, see: https://www.gov.uk/government/consultations/breathing-space-scheme-consultation-on-a-policy-proposal
For Robin’s previous statements on debt and affordable credit, see: https://www.walker4worcester.com/category/campaigns/affordable-credit/ https://www.walker4worcester.com/?s=credit+unions https://www.walker4worcester.com/important-information-on-debt-advice-and-debt-management-companies/ https://www.walker4worcester.com/walker-celebrates-40-years-of-citizens-advice-with-local-volunteers/ https://www.walker4worcester.com/walker-hails-new-armed-forces-credit-union-and-marks-international-credit-union-day/ https://www.walker4worcester.com/walker-welcomes-new-credit-union-shop-to-worcester-as-6-towns-expands/ https://www.walker4worcester.com/walker-celebrates-work-of-citizens-advice-in-worcester/ https://www.walker4worcester.com/robin-backs-budget-for-growth-rising-living-standards/