The long-awaited rent-to-own price cap will be coming into force in April

The rent-to-own price cap will be coming into force in April to offer more protection for those in poverty who are forced to turn to unscrupulous high-cost credit lenders.

The Financial Conduct Authority (FCA) has confirmed that the long-mooted cap will arrive in a couple of months, promising to save customers who have been ripped off by lending firms up to £22.7m a year.

The cap will ensure that lenders cannot charge more than 100 per cent of the value of a product – cracking down on firms such as BrightHouse which was ordered to pay £14.8m in compensation to 249,00 customers in 2017 after breaching FCA lending rules.

Today @TheFCA has confirmed its policy on the introduction of the new rent-to-own price cap rules, following consultation. Thanks to the new rules, a cap on the cost of rent-to-own credit will come into force in April. Read more: https://t.co/meC68v77z4 #renttoown #highcostcredit pic.twitter.com/y5mX3t2Eeb

— StepChange (@StepChange) March 5, 2019

A consultation paper on a price cap, released in November, found that BrightHouse and other firms in the rent-to-own sector charge up to four times what a product is worth with skyrocketing repayments driving vulnerable customers into further poverty.

And that’s why the cap will introduce benchmark base prices compared across three mainstream retailers to stop consumers being exploited.

The new measures will also prevent firms from passing on the cost of the cap to the customer by hiking up the price of insurance premiums, extended warranties or arrears charges.

“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,” said Christopher Woolard, executive director of strategy and competition at the FCA.

“This price cap has been designed to target some of the most excessive prices in the rent-to-own market. We will review the impact of the price cap in 2020 and if further work is needed to protect these customers we are prepared to intervene again.”

Debt charity StepChange has welcomed the new rules but warned that the watchdog may need to go further to protect those on the breadline.

“We welcome the fact that the price cap will apply both to the cost of credit and to the underlying cost of goods that can make these agreements expensive, even compared to other types of high cost credit,” said Peter Tutton, StepChange’s head of policy.

“However, rent to own and other high-cost credit will continue to put a strain on low-income households who have little choice but using credit to pay for essential goods. So we are pleased that the government is looking at the feasibility of a no interest loans scheme for the most hard-pressed households.

“This important intervention by the FCA still needs to be accompanied by better affordable alternatives to rent to own.”

Our social investment arm, Big Issue Invest, knows the value of such alternatives. That’s why they invest in fair credit firms like Moneyline, Street UK and Fair For You to stop vulnerable consumers having to turn to rip-off high-cost credit firms.

https://twitter.com/GillianGuy_CAB/status/1102862611375362048

Citizens Advice chief executive Gillian Guy wants to see the price cap rolled out further. She added: “Our evidence has repeatedly shown well-designed caps can reduce the harm high-cost credit can cause.

“Where these credit products cause more harm than good, for example doorstep loans, the FCA should move to introduce similar protections.”