The FCA has been tackling issues in the rent-to-own (RTO) sector since it took over regulation of consumer credit in 2014. The FCA has already implemented a number of changes in the sector, including requiring more transparency when firms are disclosing the cash value of goods, the amount of interest to be paid, and total cost to customers. RTO firms were also required to make substantial improvements in the way they assess creditworthiness and deal with customers in financial difficulty.
The FCA has now published proposals to introduce a price cap to “address the remaining issue of vulnerable consumers paying too much for household goods” (please see CP18/35). The FCA estimates that its proposals will deliver net consumer benefits of between £19.6m and £22.7m per year.
The consultation ends on 17 January 2019 and, subject to feedback received, will come into force on 1 April 2019. The new rules will apply immediately to any new products RTO firms introduce to the market for the first time. For existing products the rules will apply when the RTO firm changes its price or when the rules have been in force for three months (whichever date is sooner).
The proposals only apply to RTO, but the FCA has said that it will consider carrying our further work in relation to consumer hire agreements that have similar features and pricing to RTO agreements to better understand the risks and costs to consumers of these agreements and intervene if necessary.
The consultation paper also includes the FCA’s final rules on the sale of extended warranties. From 22 February 2019, RTO firms will have to allow two clear days before consumers can buy an extended Warranty.
The FCA Proposals
The price cap will limit the cost of the product (base price) and the total charge for credit.
To control the base price, the proposed rules will require a firm to benchmark the base price of any product it intends to sell through RTO by setting it:
- no higher than the median of 3 mainstream retailers’ prices (which can include no more than 1 catalogue credit retailer); and
- where a catalogue credit retailer does not sell the product, no higher than the highest mainstream retail price of the other 3 retailers.
The total charge for credit cannot be more than 100% of fixed allowable costs (that is price of the product and, if chosen by the customer, delivery and installation). There will be severe consequences for non-compliance – the customer’s obligation to pay all charges under a non-compliant agreement will be unenforceable by the firm.
To prevent avoidance, the FCA has clarified that firms will not be able to increase its theft and accidental damage charges or arrears charges to offset the effects of the price cap. The FCA said it will monitor compliance with the proposed rules and will intervene if necessary.