The FCA took over the regulation of consumer credit, including the rent-to-own sector, in April 2014. Our initial actions were to tackle immediate concerns with the lack of transparency of costs, product bundling, affordable lending and the treatment of people in financial difficulties. We published an update on our rent-to-own work in July 2016.
Since then our supervision of rent-to-own firms has sought to ensure that customers are treated fairly and firms comply with our standards.
Since 2014, our supervisory work with the firms has achieved better outcomes for consumers. Firms are now more transparent when displaying the cash value of goods, the amount of interest to be paid, and the total cost to customers.
Our work has also resulted in the unbundling of compulsory warranties and insurance. These are now offered separately and customers are able to obtain their own insurance cover instead.
Together these developments help consumers understand what they are paying for and make it easier to compare prices with other retailers.
We have also seen the firms change their business models in response to our concerns – including how they assess affordability and the action they take to help those in long term financial difficulties.
Our supervisory work has so far resulted in nearly £16m of compensation being paid to around 308,000 consumers by two firms, BrightHouse and Buy As You View. This compensation relates to historic poor practices including unaffordable lending and inappropriate charges and fees. If we discover any further instances of consumer harm, we will require the firms to put things right for any affected consumers.
Alongside, and in conjunction with, our supervision work, these firms have had to set out how they meet the conditions to satisfy us that they are suitable to be authorised. They have all been operating under interim permissions since the transfer of consumer credit regulation in April 2014.
Our detailed assessment of the complex business models operated by each firm has been important to ensure consumers are not being put at risk and that adequate consumer protections are in place. We will ensure that firms are meeting the right standards before they are fully authorised.
Of the three largest firms in the sector, Buy As You View has now entered administration, Perfect Home was authorised in December 2017, and BrightHouse is working towards meeting the conditions as set out in the Minded to Authorise letter issued in April 2017.
Our supervisory interventions have been targeting poor practice to tackle the more immediate concerns we have had with rent-to-own since the transfer of consumer credit regulation in 2014. In November 2016 we announced our review into High-Cost Credit. This review is looking at any rules that could be changed or introduced on a number of high-cost credit products; including rent-to-own. We published an update on this work on 31 January 2018.
This update highlights our continuing policy work across consumer credit and also examines how the FCA and others could support the growth of alternative credit.
In November 2018, we consulted on introducing a price cap in the rent-to-own market (CP18/35) to address harm to vulnerable consumers from high prices. In March 2019, we published feedback on that consultation and final rules on a price cap (PS19/6). These rules come into force from 1 April 2019.
July 2020 update
We are reviewing the effectiveness of the rent-to-own price cap in protecting consumers. We committed to this when confirming that the price cap would come into force in March 2019. Our review focuses on:
- how the price cap has affected product prices and the total costs charged for products sold by rent-to-own firms
- the effectiveness of the rule limiting firms’ ability to increase other charges to recover lost revenue.
We are mindful of the effects of coronavirus on the price cap.
Depending on priorities due to the pandemic, we aim to complete and report on the review towards the end of this year. Our findings will then factor into our work with rent-to-own firms and more widely in considering future pricing interventions. We continue to carefully supervise rent-to-own firms, and have issued temporary guidance on how these firms should help consumers during the coronavirus pandemic.
December 2020 update
We have published our review of the effectiveness of the rent-to-own price cap in protecting consumers. The evaluation shows that the price cap has been effective in reducing the prices charged by RTO firms, and that the highest prices charged by RTO firms have been significantly reduced.
05/03/2019: Information added Updated with CP18/35 and PS19/6 publications