A price cap on firms in the rent-to-own sector will be introduced from April next year, the Financial Conduct Authority has proposed.
The regulator says the cap, which is subject to consultation, will provide protection for some of the most financially vulnerable people in the UK.
Planned to come into force as of 1 April 2019, the cap is expected to save consumers up to £22.7m per year.
According to the regulator, just one third of RTO customers are in work, most are on low incomes – between £12,000 and £18,000 – and are likely to have missed a bill payment in the last six months.
The FCA says that in spite of these circumstances, firms often charge these customers more than other retailers for essential household goods such as a washing machine or a cooker, and with add-on insurance and warranties in some cases RTO customers can pay up to four times the average retail price.
To protect consumers, the FCA has designed a bespoke price cap to fit the RTO market, limiting both the cost of the product and the charge for credit. Under the proposed cap, credit charges cannot be more than the cost of the product. In addition, RTO firms will need to benchmark the cost of products against the prices charged by three other retailers.
FCA chief executive Andrew Bailey says: “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. If implemented it will save consumers up to £22.7m a year from excessive charges.
“We want to stop consumers having to pay many multiples more than the price of a product on the high street. These changes build on the measures we have already taken across the high-cost credit sector.
In addition, the FCA is introducing a two-day cooling off period for the sale of extended warranties. This will effectively ban firms from selling these warranties at the point of purchase and will come into force on 22 February 2019.
The consultation on the price cap and bench-marking proposals will be open until 17 January 2019. If agreed the new rules will be implemented from 1 April 2019.