The Financial Conduct Authority has proposed to introduce a price cap on the rent-to-own (RTO) sector.
The cap, subject to consultation, will come into force on 1 April 2019 providing protection for some of the most financially vulnerable people in the UK. Once in force, the changes are expected to save consumers up to £22.7m per year.
When purchasing essential household goods, such as a washing machine or a cooker, and with add-on insurance and warranties in some cases, RTO customers can pay up to four times the average retail price compared to other retailers.
To protect consumers, the FCA has designed a bespoke price cap to fit the RTO market, limiting both the cost of the product and the charge for credit. 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.
Andrew Bailey, Chief Executive of the Financial Conduct Authority, said: “Today’s measures are designed to bring down very high prices in the rent-to-own sector, which is used by some of the most financially vulnerable in our society. A cap will prevent firms charging over the odds for essential everyday items like cookers or washing machines. We believe a cap is the only intervention that will effectively tackle the highest prices.
“We want to stop consumers having to pay many multiples more than the price of a product on the high street. These changes build on the measures we have already taken across the high-cost credit sector.”
In addition, the FCA is introducing a two-day cooling off period for the sale of extended warranties. This will effectively ban firms from selling these warranties at the point of purchase. This will come into force on 22 February 2019.
The consultation on the price cap and benchmarking proposals will be open until 17 January 2019.