Our response to the FCA's consultation on a rent-to-own price cap
The FCA has responded to concerns about the excessive cost of rent-to-own agreements, particularly for vulnerable people, by committing to implement a price cap on rent-to-own products.
The cap will require rent-to-own firms to benchmark the ‘base’ price of the products against other mainstream retailers and cap the cost of credit on each agreement to 100%.
We welcomed the FCA’s proposals, which will curtail the upper range of prices paid by rent-to-own customers. This noted, it's likely most agreements will not be affected by the cap and many people will still pay in excess of twice the high street price of goods.
We remain concerned about these excessive costs given that around two-thirds of rent-to-own purchases are for essential household items such as white goods and furniture.
In addition to supporting the government and responsible lenders to provide affordable alternatives to rent-to-own, we have argued that the FCA should:
- Increase the number of equivalent mainstream products against which rent-to-own retailers must benchmark the price of goods from three to five, and exclude catalogue credit to ensure the restriction of the base price of goods cannot be gamed and reflects the reasonable cost of goods.
- Extend the cap to second-hand goods sold by rent-to-own firms so that the cap includes all potentially high cost items.
- Ensure rent-to-own firms are required to benchmark prices more often than every 12 months and with sufficient frequency to ensure prices stay in line with mainstream retailers.
- Include default fees in the total credit cap, as is in the high cost short term credit (payday loan) cap, to remove incentives for bad lending and prevent repeat fees from adding to the excessive cost of agreements.
- Implement the cap for all agreements from April 2019 (rather than through a phased introduction) to ensure vulnerable people benefit from protections as son as possible and prevent confusion for customers.
- Review the effectiveness of the rent-to-own cap after one year to respond to learning from implementation.
Download our response to read our full recommendations.
Download our response