LONDON (Reuters) – Britain’s markets watchdog has proposed a cap on prices people pay for household goods like televisions and washing machines bought on “rent-to-own” credit from April next year.
Rent-to-own (RTO) involves consumers paying a weekly sum for three years, and they typically end up paying three to four times what they would have paid for the item in cash at the start.
“Under the proposed cap, credit charges cannot be more than the cost of the product. In addition, RTO firms will need to benchmark the cost of products against the prices charged by three other retailers,” the Financial Conduct Authority said in a statement on Thursday.
BrightHouse and Perfect Home account for over 90 percent of outstanding balances on RTO agreements in a market that has shrunk to less than 400 million pounds ($511 million), compared with 700 million pounds in 2015, the FCA said.
The proposed cap, which is being put out to public consultation, would save consumers up to 22.7 million pounds a year, the watchdog said.
“We want to stop consumers having to pay many multiples more than the price of a product on the high street,” said FCA Chief Executive Andrew Bailey.
The watchdog is also introducing a two-day “cooling off” period from February on the sale of extended warranties on items bought, effectively banning firms from selling the warranties at the point of sale.
RTO customers are among the most financially vulnerable, with only a third in work, most on low incomes and likely to have missed a bill payment in the last six months, the FCA said.
The FCA has already capped the interest rates that payday lenders can charge on loans, a move that was followed shrinkage in the sector and the collapse of leader Wonga.
BrightHouse, Perfect Home, and Buy As You View, which no longer takes on new business, have paid nearly 16 million pounds in compensation to 340,000 consumers for unaffordable lending and innapropriate charges and fees in the past.
The FCA said it has set the RTO cap to enable firms in the sector to continue to exist.
“We note, however, that firms in the sector are currently undergoing substantial changes, including the largest two firms making significant losses, and therefore firm exit is a possibility,” the watchdog said.
(Reporting by Huw Jones; Editing by Silvia Aloisi and Raissa Kasolowsky)
