Martin: ‘We need to change the system so no-one needs to touch these firms’
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 cracked down on it.
“There has been a real inconsistency across the board that payday loans – one form of high-cost lending – have had a total cost cap on them, so that you cannot pay more than double what you originally borrowed, but many other forms of high-cost credit are free to charge what they like. I hope that this is only the first sector that the FCA cracks down on – we also need to see similar changes to unauthorised overdraft costs, logbook loans and others.
“With rent-to-own, it must be remembered the rip-off is not only are you sometimes charged nearly double for the product, they then lend it at up to 100% APR, which means the costs aren’t gradually exploding out of control, they’ve been out of control from the start.
“The move to capped costs at, we would hope, a very maximum of the same as the payday loan cap, is important. As is the cooling-off period for extended warranties, where, on top of the already really expensive prices, people are charged for warranties that can cost more than the product would itself if it were bought the normal way. Quite simply, we need to change the system so no-one needs to touch these firms.”
What is rent-to-own?
Rent-to-own firms allow consumers to buy goods using smaller regular payments over a period of one to three years, rather than a lump sum. The average weekly payment is £28.
But the firms charge high levels of interest, which means the overall cost of the product ends up being far more than the retail price.
The FCA says that rent-to-own consumers are often financially vulnerable and are likely to be on low incomes of between £12,000 to £18,000, to have recently missed a bill payment, and just a third are in work – yet they can end up paying up to four times the retail price for essential household goods.
Two firms, BrightHouse and PerfectHome, account for just over 90% of outstanding rent-to-own agreements, and as of November 2017 there were about 300,000 rent-to-own customers with outstanding debt across the market.