Rent-to-own firms ripping off customers, say MPs

http://www.theguardian.com/business/2015/feb/10/rent-to-own-firms-ripping-off-customers-say-mps

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Cash-strapped consumers are being ripped off by rent-to-own firms selling them household goods at inflated prices and repossessing them when payments are missed, MPs have said.

The all-party parliamentary group on debt and personal finance said on Tuesday people using repayment plans offered by companies such as BrightHouse are often paying three times as much as they would if they could buy the same items outright.

The stores, which offer goods such as washing machines and TVs on weekly payment plans, have flourished in recent years as it has become more difficult for some households to access mainstream credit.

Since April 2014, rent-to-own providers have been governed by the Financial Conduct Authority . MPs have called on the City regulator to take action against the firms to make it easier for customers to compare charges and to crack down on some of the industry’s worst practices.

The main rent-to-own firms charge annual interest on purchases of up to 94.7% and force customers to buy expensive insurance policies which attract interest too.

In December 2014, the parliamentary group, whose secretariat is provided by the debt charity StepChange, found that a Hotpoint tumble dryer on sale for £229 at Curry’s would cost BrightHouse customers £780 once interest, compulsory insurance and service cover was taken into account.

Similarly, a freezer that cost £644 at John Lewis including a five-year service plan, was being sold to BrightHouse customers for £1,716.

More recently, the Centre for Responsible Credit found that the cheapest washing machine available at BrightHouse cost a total of £1,092, from a base “cash” price of £569, while the same machine was £295 from Co-op Electricals.

The MPs said customers using BrightHouse and other firms such as Buy as You View and PerfectHome were “vulnerable to over-charging” as they had few alternative ways to buy the goods. They added that transparency in rent-to-own contracts was poor, that the insurance was poor value and that policies could be being missold to people who already had adequate cover.

Typically, customers using rent-to-own firms pay for the goods over two or three years. During that time they are paying interest and the associated service and insurance costs. BrightHouse is the largest firm in the sector, with 291 stores in the UK, followed by PerfectHome, which has 67. Buy As You View operates online and collects payments from people’s homes. Between them, the firms have about 350,000 customers, with half reliant on welfare benefits to some extent.

It is not uncommon for customers to struggle with payments, the MPs found, with information from BrightHouse showing that one in five borrowers is more than a month in arrears. Across the industry, more than 10% of customers have goods repossessed.

MPs called on the FCA to ban compulsory insurances, review the possible mis-selling of insurance and introduce “health warnings” to ensure customers were aware of the total cost of RTO agreements and the risks of repossession.

It also recommended new protection to prevent customers in financial difficulty losing essential items when they have already made substantial payments towards ownership.

Yvonne Fovargue, the Labour MP who heads up the parliamentary group, said: “Rent-to-own [RTO] stores like BrightHouse charge inflated prices to some of the poorest people in the country.

“Customers are often obliged to take out additional warranties and insurance, as a result paying several times the true value of the goods. Many customers simply can’t keep up and the goods are taken back to be sold again.”

She added: “RTO firms have been cashing in on people’s financial struggles for more than a decade. The FCA needs to act now to stop RTO customers from being ripped off.”

The chief executive of BrightHouse, Leo McKee, said he was disappointed by the tone of the report and its conclusions.

“We are proud to serve our customer base of lower income families. The service we provide gives them access to high-quality products for their homes at competitive prices. Our customers carefully manage their limited resources and appreciate the peace of mind they get from BrightHouse,” he said.

McKee said the firm was working closely with the FCA and was about to make changes to the way goods were advertised.

“We are in the process of breaking out the cost of the individual elements of our service package,” he said. “This information will clearly be shown on all our price tickets from later this month.”