CP18/35: Rent-to-own and alternatives to high-cost credit – feedback on CP18/12 and consultation on a price cap

Open consultation: CP18/35
22/11/2018
22/11/2018
Consultation closes
17/01/2019
Feedback
March 2019

This paper sets out our proposed price cap on the rent-to-own market, summarises feedback to CP18/12 on the questions we asked about rent-to-own, and sets out our final rules on a point-of-sale ban on extended warranties alongside the sale of an RTO agreement. It also includes an update on our work on alternatives to high-cost credit.

Read CP18/35 (PDF)

We added an addendum to this CP on 29 November 2018. A new question 8 was added to:

  • the list of questions on page 58
  • page 83, paragraph 144
  • the online response form

Infographic: Price cap for the rent-to-own market

Infographic: Alternatives to high-cost credit: our approach

In our CP18/12 consultation paper of May 2018 we explained that there was a case for considering introducing a price cap in the rent-to-own (RTO) market. We have since analysed the market further, including in-depth data analysis and a survey of RTO consumers.

We are now consulting on introducing such a price cap from 1 April 2019 to address harm to vulnerable consumers from high prices.

Our proposed price cap on RTO products is designed to control prices by 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 would need to benchmark the cost of products against the prices charged by 3 other retailers.

Our rules would also prevent firms increasing their prices for insurance premiums (e.g. theft and accidental damage cover), extended warranties or arrears charges in order to recoup lost revenue from the price cap.

We are proposing that the draft rules apply from 1 April 2019 to any new products RTO firms introduce to the market for the first time. For products that RTO firms are already offering, the rules will apply either at the point the RTO firm makes a price change or once the rules have been in force for 3 months (whichever date is sooner).

Following consultation in CP18/12, we are also now making the following final rules on the sale of extended warranties by RTO firms:

  • A point-of-sale ban on the sale of extended warranties alongside the sale of the RTO agreement (‘the point-of-sale ban’). Firms will be required to allow 2 clear days before consumers can actively opt-in to buy these.
  • New requirements on firms to provide information to consumers to help them decide whether to buy the extended warranty. This information will include the price in terms of weekly, annual and length-of-contract cost, as well as how the extended warranty relates to the manufacturer’s warranty and any theft and accidental damage insurance. 

PwC research

We commissioned PwC to provide primary research on consumers’ use, experience and understanding of the rent-to-own market, and to inform our analysis of the impacts of any potential pricing intervention.

Alternatives to high-cost credit

We recognise the challenges some people find in accessing alternative sources of credit, and so we’re publishing further information about our approach to promoting alternatives to high-cost credit. These include not only lower cost credit options but also alternatives that meet the consumer’s underlying need, without taking out credit – for example other sources of essential household goods. We set out what actions we are taking and how we are working closely with the Government and other relevant organisations to support a number of initiatives.

Who this applies to

This document should be read by firms offering hire purchase and/or conditional sale, consumer groups and debt advice organisations. It will also be of interest to providers of alternatives to high-cost credit, as well as consumer hire firms. If we introduce a price cap as proposed, it will affect consumers considering purchasing household goods using RTO from 1 April 2019. 

What you need to do

Please send us your comments by 17 January 2019.

Online response form

You can also:

  • email your responses to [email protected] or
  • write to: Emma Thomas, Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN

Next steps

We will consider your comments and aim to publish our feedback in early March 2019.