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Price cap plan for rent-to-own sector | Price cap plan for rent-to-own sector |
(35 minutes later) | |
Plans to cap the costs of buying domestic goods such as TVs and fridges through rent-to-own shops have been welcomed by the stores' customers. | Plans to cap the costs of buying domestic goods such as TVs and fridges through rent-to-own shops have been welcomed by the stores' customers. |
Michele Jacques, from Droylsden in Manchester, ended up spending £700 on a cooker as a result of interest rates that can reach 99% a year. | Michele Jacques, from Droylsden in Manchester, ended up spending £700 on a cooker as a result of interest rates that can reach 99% a year. |
Had she gone to a High Street shop, it could have cost her as little as £250. | Had she gone to a High Street shop, it could have cost her as little as £250. |
The proposals from the Financial Conduct Authority (FCA) mean rent-to-own customers would pay much less. | The proposals from the Financial Conduct Authority (FCA) mean rent-to-own customers would pay much less. |
Rent-to-own customers make monthly payments, in effect renting goods until they have paid in full. | Rent-to-own customers make monthly payments, in effect renting goods until they have paid in full. |
"Interest rates should be capped. They shouldn't be allowed to make so much profit from vulnerable people," said Ms Jacques. | "Interest rates should be capped. They shouldn't be allowed to make so much profit from vulnerable people," said Ms Jacques. |
"It does make you frustrated. It makes you angry." | "It does make you frustrated. It makes you angry." |
She said the cap proposed by the FCA was "the correct thing to do". | She said the cap proposed by the FCA was "the correct thing to do". |
How will the proposed cap work? | How will the proposed cap work? |
First, the FCA will limit the amount of interest that customers pay. | First, the FCA will limit the amount of interest that customers pay. |
From April 2019, they will pay no more in interest than the cost of the product itself. So if a cooker costs £300, they will pay no more than £600 in total, including the cost of credit. | From April 2019, they will pay no more in interest than the cost of the product itself. So if a cooker costs £300, they will pay no more than £600 in total, including the cost of credit. |
However, rent-to-own shops will still be able to charge for insurance and warranties on top of that. | However, rent-to-own shops will still be able to charge for insurance and warranties on top of that. |
Second, the cost of the goods themselves will be limited. | Second, the cost of the goods themselves will be limited. |
Shops will be able to charge no more than the median - i.e the middle price - of three mainstream retailers. | Shops will be able to charge no more than the median - i.e the middle price - of three mainstream retailers. |
Andrew Bailey, chief executive of the FCA 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. | Andrew Bailey, chief executive of the FCA 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." | "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." |
How much will consumers save? | How much will consumers save? |
The FCA says the cap could save about 400,000 consumers up to £22.7m a year. | The FCA says the cap could save about 400,000 consumers up to £22.7m a year. |
In a series of examples, someone who buys a Hotpoint cooker on a rent-to-own basis could save as much as £606 over a three-year period, or £3.88 a week. | In a series of examples, someone who buys a Hotpoint cooker on a rent-to-own basis could save as much as £606 over a three-year period, or £3.88 a week. |
Someone buying an Indesit fridge freezer through rent-to-own could save £360 a year, or £2.31 a week. | Someone buying an Indesit fridge freezer through rent-to-own could save £360 a year, or £2.31 a week. |
How have rent-to-own shops reacted? | How have rent-to-own shops reacted? |
The main providers of rent-to-own goods are Brighthouse and PerfectHome. | The main providers of rent-to-own goods are Brighthouse and PerfectHome. |
A BrightHouse spokesman said: "BrightHouse has been working closely and constructively with the FCA over a number of years. This comprehensive process has led to many changes in the way we operate as a business and serve our customers. | A BrightHouse spokesman said: "BrightHouse has been working closely and constructively with the FCA over a number of years. This comprehensive process has led to many changes in the way we operate as a business and serve our customers. |
"We're going to carefully consider today's announcement, while continuing to offer those excluded from mainstream credit ways to get the household goods they need." | "We're going to carefully consider today's announcement, while continuing to offer those excluded from mainstream credit ways to get the household goods they need." |
PerfectHome said it too would consider the plans in detail. | PerfectHome said it too would consider the plans in detail. |
What do consumer groups say? | What do consumer groups say? |
The proposed cap was welcomed by the debt charity StepChange, The Money Advice Trust, and by Citizens Advice. | |
"This cap is a victory for people who struggle with the runaway costs of rent-to-own agreements," said Gillian Guy, chief executive of Citizens Advice. | "This cap is a victory for people who struggle with the runaway costs of rent-to-own agreements," said Gillian Guy, chief executive of Citizens Advice. |
"A cap gets to the heart of the problem by stopping costs from spiralling out of control and pushing people into further debt. | "A cap gets to the heart of the problem by stopping costs from spiralling out of control and pushing people into further debt. |
"Our evidence has repeatedly shown that well-designed caps can reduce the harm high-cost credit can cause, as they have done in the payday loan market." | "Our evidence has repeatedly shown that well-designed caps can reduce the harm high-cost credit can cause, as they have done in the payday loan market." |
However Andrew Hagger, a personal finance expert at Moneycomms, said rent-to-own goods will remain expensive. | However Andrew Hagger, a personal finance expert at Moneycomms, said rent-to-own goods will remain expensive. |
"The measures are long overdue and will help, but you have to question whether a 100% mark up is acceptable. | "The measures are long overdue and will help, but you have to question whether a 100% mark up is acceptable. |
It's a big shift in the right direction, but in essence customers can end up paying double the retail price which still seems excessive." | It's a big shift in the right direction, but in essence customers can end up paying double the retail price which still seems excessive." |