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Rent-to-own customers need price cap, says Citizens Advice Rent-to-own customers need price cap, says Citizens Advice
(about 1 hour later)
Consumers who use "rent-to-own" firms to buy goods should be protected by a price cap, similar to controls on payday loans, Citizens Advice has said.Consumers who use "rent-to-own" firms to buy goods should be protected by a price cap, similar to controls on payday loans, Citizens Advice has said.
Up to 400,000 people use the firms to buy household appliances, typically paying the money back over a three-year period.Up to 400,000 people use the firms to buy household appliances, typically paying the money back over a three-year period.
But after interest is added, they can end up paying twice the original price.But after interest is added, they can end up paying twice the original price.
The Financial Conduct Authority (FCA) has told the BBC that it is prepared to consider such a cap on charges.The Financial Conduct Authority (FCA) has told the BBC that it is prepared to consider such a cap on charges.
Citizens Advice also said there was a lack of affordability checks in the industry, meaning that people signed up to agreements they could not afford.Citizens Advice also said there was a lack of affordability checks in the industry, meaning that people signed up to agreements they could not afford.
And it said that rent-to-own firms did not always take a flexible approach when shoppers got into debt.And it said that rent-to-own firms did not always take a flexible approach when shoppers got into debt.
Price cap impactPrice cap impact
Since January 2015, the FCA has imposed a cap on the amount that payday lenders are allowed to charge their customers.Since January 2015, the FCA has imposed a cap on the amount that payday lenders are allowed to charge their customers.
Loan repayments are limited to no more than 0.8% per day of the amount they borrowed, and in total no one should pay back more than twice the original sum.Loan repayments are limited to no more than 0.8% per day of the amount they borrowed, and in total no one should pay back more than twice the original sum.
Since the introduction of that cap, Citizens Advice says that the number of people with payday loan debt problems has halved.Since the introduction of that cap, Citizens Advice says that the number of people with payday loan debt problems has halved.
So it wants similar controls on the rent-to-own market.So it wants similar controls on the rent-to-own market.
"There ought to be some kind of cap on the cost to the individual of the item they are buying, so they know right up front how much they are going to pay," said Gillian Guy, the chief executive of Citizens Advice."There ought to be some kind of cap on the cost to the individual of the item they are buying, so they know right up front how much they are going to pay," said Gillian Guy, the chief executive of Citizens Advice.
In the 18 months since the cap was introduced, about 800,000 fewer people took out payday loans, according to the FCA.
The FCA said that it would be prepared to consider such a cap, but added that in the case of the payday loan market, it was a "last resort".The FCA said that it would be prepared to consider such a cap, but added that in the case of the payday loan market, it was a "last resort".
"The price cap is very much the thing we do when all other price measures don't look very promising," Andrew Bailey, chief executive of the FCA, told the BBC."The price cap is very much the thing we do when all other price measures don't look very promising," Andrew Bailey, chief executive of the FCA, told the BBC.
"So we would start elsewhere, and work our way through the possible remedies.""So we would start elsewhere, and work our way through the possible remedies."
AffordabilityAffordability
Citizens Advice also wants to see new rules that would require rent-to-own firms to do more thorough affordability checks.Citizens Advice also wants to see new rules that would require rent-to-own firms to do more thorough affordability checks.
Dawn North, from Port Talbot in South Wales, is a regular customer of such firms, and has fallen behind with payments.Dawn North, from Port Talbot in South Wales, is a regular customer of such firms, and has fallen behind with payments.
"They didn't really do a credit check," she said."They didn't really do a credit check," she said.
"All they wanted was your income and what your expenditure was.""All they wanted was your income and what your expenditure was."
BrightHouse, the largest firm in the market, has said that it does undertake affordability assessments.BrightHouse, the largest firm in the market, has said that it does undertake affordability assessments.
It also points out that it serves lower income families who are excluded from taking out bank loans.It also points out that it serves lower income families who are excluded from taking out bank loans.
'Fair terms'
The FCA is now asking for evidence for its inquiry into all forms of "high cost" credit, including overdraft charges and logbook loans.The FCA is now asking for evidence for its inquiry into all forms of "high cost" credit, including overdraft charges and logbook loans.
It will also review the payday loan cap, two years after it came into force.It will also review the payday loan cap, two years after it came into force.
Mr Bailey told the BBC that catalogue lending and pawnbroking would also be considered
It is important that people can still have access to credit, but the FCA wants them to have it "on terms that are fair to them", he said.