A total cost cap on rent-to-own items like washing machines, fridge freezers and televisions could save consumers £276 (28%) per product, new analysis from Citizens Advice has found.
The national charity has modelled the impact its proposed total cost cap in the rent-to-own sector would have. The FCA has indicated it will implement a cap by April 2019 and is currently looking at what form this will take. Citizens Advice found its suggested cap on the cost of a typical washing machine, purchased from a rent-to-own retailer, could save people £174 (30%). Consumers are typically tied into such deals for 3 years.
The new analysis also compared the cost of 9 other household products available from the major rent-to-own providers, with the same items purchased upfront from a typical high street retailer.
Last year Citizens Advice helped more than 5,000 people with rent-to-own debts. Their average overall debt was £8,193.(For further detail, see ‘Notes to Editors’). It says a cap on interest and charges associated with rent-to-own products could save consumers up to £62 million on 245,000 goods.
Citizens Advice is calling for the FCA to commit to its April 2019 deadline and implement its proposed 100% cost cap in the rent-to-own sector that:
- Makes rent-to-own products more affordable. By limiting the upfront cost of the item, plus installation/delivery fees and interest, the outstanding levels of debt held by rent-to-own clients would be reduced.
- Limits late payment charges at £15 per agreement per year. Nearly 60% of rent-to-own clients are charged late payment fees. These charges commonly amount to £72 over the course of a loan.
The charity says a cap will give people a clear idea of the total amount they are expected to repay, helping families to manage their money. It found 25% of people who had purchased a product didn’t know the total amount they would have to repay.
Gillian Guy, Chief Executive of Citizens Advice, said “By 1 April 2019, it will have been 853 days since the FCA launched its high-cost credit review. Until a cap is introduced, consumers will continue to pay over the odds for these high-interest products. Caps can work, we’ve seen this with payday loans where thousands of consumers have been protected by the FCA and are now better off as a result.”
“The FCA has recognised the massive harm caused by the high interest rates on tempting rent-to-own deals. It should now stick to its own deadline to implement a cap. No one should have to pay more than double what they borrow.”
Citizens Advice will respond to the FCA’s further consultation proposals – including on extended warranties, doorstep loans and overdrafts – ahead of the 31st August deadline.