A price cap on rent-to-own goods will go ahead, the regulator has confirmed, saving customers millions of pounds per year collectively on the cost of everyday products such as fridges, cookers and televisions.
The cap will be introduced from April 1 and will save consumers in the UK up to £22.7 million a year, the Financial Conduct Authority (FCA) said.
The FCA, which has previously consulted on the issue, is setting a cap which means credit charges cannot be more than the cost of the product.
Currently, in some cases, rent-to-own consumers are paying in total more than four times the retail price of some goods.
Firms will also be required to benchmark prices, including delivery and installation, against the prices charged by three mainstream retailers.
This will prevent firms from bumping up their charges in other ways to recoup lost revenue from the price cap.
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.”
Mr Woolard told the Press Association that a cooker which would normally retail at around £480 to £500 could end up costing more than £1,700 “all in” from a rent-to-own provider. But under the new price cap, rent-to-own customers would see the cost fall by more than £700.
He said other work is also under way to help expand people’s options outside the rent-to-own sector.
For example, some credit unions and retailers are working together to offer white goods at reasonable rates of interest.
Discussions have also been taking place with housing associations about upcycling and recycling schemes.
The FCA will be keeping a close eye on rent-to-own firms’ compliance with the new rules and it will review the price cap in 2020.
It is prepared to intervene again if further work is needed.
The FCA has previously said rent-to-own customers are some of the most financially vulnerable in society.
Only one third are in work, most are on low incomes of between £12,000 and £18,000, and they are likely to have missed a bill payment in the last six months.
Despite this, firms often charge these customers more than other retailers for essential household goods such as a washing machine or a cooker, and, with add-on insurance and warranties, in some cases rent-to-own customers can pay up to four times the average retail price.
The FCA has been looking into the high-cost credit sector generally – as well as potential alternatives to high-cost loans.
It previously imposed a cap on the cost of payday loans following an outcry from charities over people becoming trapped in debt spirals.
Martin Lewis, founder of MoneySavingExpert.com, said: “The rent-to-own sector is perhaps the most visceral example of the poverty premium in the UK.
“The fact that the most vulnerable, with the least, pay four times as much for their electrical and white goods as everyone else is simply unjust, and it’s rightfully about time that the FCA cracks down on it.”
Citizens Advice said it helps around 5,000 people a year with rent-to-own issues.
Chief executive Gillian Guy said: “This cap, which we’ve campaigned for, is a win for those struggling with the runaway costs of rent-to-own agreements. We’re delighted it will now be introduced.”
She continued: “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.”
Peter Tutton, head of policy at StepChange Debt Charity, said: “This important intervention by the FCA still needs to be accompanied by better affordable alternatives to rent-to-own.”