Following engagement with the Financial Conduct Authority (FCA), BrightHouse has committed to pay over £14.8 million (in the form of cash payments and balance adjustments) to 249,000 customers in respect of 384,000 agreements for lending which may not have been affordable and payments which should have been refunded.
BrightHouse (a trading name of Caversham Finance) is a rent-to-own firm which provides household goods to customers on hire purchase agreements. BrightHouse has been working closely with the FCA since late 2014 as we identified that the firm’s lending application affordability assessment processes and collections processes did not always deliver good outcomes for customers particularly those who were at a higher risk of falling into financial difficulty.
In response to these concerns the FCA says BrightHouse has undertaken an extensive programme of work to improve its lending application assessment to ensure that loans are affordable and customers are treated fairly throughout the collections process, including revising its late payment fee structure.
In addition, BrightHouse has identified customers that may have been treated unfairly where its processes fell short of FCA expectations and has committed to putting things right for these customers. The firm has proposed redress for customers in two sets of circumstances:
- customers whose circumstances have not been assessed properly at the outset of the loan to determine whether they could afford it and may have had difficulty making payments. Customers who handed back the goods will be paid back the interest and fees charged under the agreement, plus compensatory interest of 8%. Customers who retained the goods will have their balances written off. This redress totals around £10.1 million for 114,000 agreements entered into between 1 April 2014 and 30 September 2016, covering 81,000 customers.
- customers who made the first payment due under an agreement with the firm which was cancelled prior to the delivery of the goods. This first payment was not returned to all customers. BrightHouse will refund this first payment plus pay compensatory interest of 8%. This redress totals around £4.7 million for 270,000 agreements entered into after 1 April 2010 covering 181,000 customers.
BrightHouse will write to all affected customers, some of whom are affected by both sets of circumstances, to explain the refund or balance adjustment that they will receive. Customers do not need to take any action until they are contacted by BrightHouse.
Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA said “During the time in question, BrightHouse was not a responsible lender and failed to meet our expectations of firms in this sector. I am pleased that it have agreed to provide redress to those customers affected by these historic practices. This scheme continues our work with the rent-to-own sector to resolve the concerns we have previously identified.”
“Responsible lending and the fair treatment of consumers, especially those in financial difficulties or who are vulnerable, are key priorities for us.”
Citizens Advice has today welcomed the news. Previous research by the charity has found that one in five rent-to-own customers spent 20% or more of their income on payments, and more than half had to take on other debts to cover the costs.
Citizens Advice has called for the FCA to improve affordability checks for rent-to-own customers to prevent people from being offered agreements they can’t afford.
In addition to action to help people when they are in debt, the charity is asking for more protection for people against unaffordable lending. The charity is also asking the payday loan cap to be extended to all forms of high cost credit – meaning that no one would pay more than twice what they borrowed in interest and charges.
Gillian Guy, Chief Executive of Citizens Advice, said: Citizens Advice has long called for the Financial Conduct Authority to take action on poor affordability checks on rent-to-own deals, which can trap people in debt. In the last 12 months, Citizens Advice helped people with more than 13,000 rent-to-own issues where people were struggling to make repayments for essential goods like fridges and washing machines.”
“We’re pleased to see that the FCA are taking action against BrightHouse whose loose lending practices have pushed the very people who can least afford it further into financial difficulty. Citizens Advice is calling on the FCA to tighten up credit checks across the rent-to-own sector to prevent people getting caught in a debt spiral.”