A price cap on rent-to-own goods is set to save customers millions of pounds per year collectively on the cost of everyday products such as fridges, cookers and televisions.
Starting from Monday April 1, the price cap will save consumers in the UK up to £22.7 million a year, the Financial Conduct Authority (FCA) has said.
The FCA’s cap means credit charges cannot be more than the cost of the product.
In some cases, rent-to-own consumers have been 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, previously 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.
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.