The Financial Conduct Authority has announced it will limit the interest that customers pay on rent-to-own products. The FCA says that all goods purchased after 1 April will be included in the price cap. Meaning the interest charged will only be as much as the cost of the product, this includes the cost of credit.
Rent-to-own shops offer people the chance to buy items they need for their home through smaller regular payments. However, once interest charges have been added, some rent-to-own consumers have ended paying more than four times the retail price they would have paid in a non rent-to-buy retailer. The FCA have set these new restrictions to help the millions of UK consumers who are struggling with debt. Shops will no longer be able to charge more than the median of three mainstream retailers, this includes delivery and installation charges.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said: “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. This price cap has been designed to target some of the most excessive prices in the rent-to-own market. The measures come into force from 1 April and we will be keeping a close watch on firms’ compliance. 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.”
Currently, in some cases, RTO consumers are paying in total more than 4 times the retail price of some goods. The cap is intended to tackle those very high prices. Under the new rules, consumers will save hundreds of pounds on household products.
The FCA has committed to carry out a further review to assess the impact of the price cap, which will take place in April 2020. The cap will be introduced from 1 April 2019 and will save consumers in the UK up to £22.7 million a year.