New research from Citizens Advice shows high-interest rates, late payment fees and expensive add-ons are leaving rent-to-own consumers struggling to pay for goods that they can end up having to return. Figures in the charity’s new ‘Rent to Return’ report show if existing rent-to-own loans were priced down through a similar cap to that on payday loans, consumers could be protected from paying up to £62 million in repayments on 245,000 rent-to-own products.
This latest research follows figures released by the charity last week that found if the Financial Conduct Authority (FCA) extended its successful payday loan cap to the home credit (doorstep loan) market, consumers could save £123 million in interest payments on up to 540,000 loans each year.
Citizens Advice is calling for further regulation in both of these markets. For rent-to-own consumers, in particular, it is concerned a combination of low incomes and high-interest rates are trapping people in problem debt. Days after the FCA announced a redress scheme of more than £2.1 million for 37,000 PerfectHome customers, Citizens Advice is calling for stronger protections for all rent-to-own consumers through a cap so that:
- People never pay back more than double the list price;
- Late payment fees never total more than £15 during the course of their agreement.
- About 400,000 people have rent-to-own debt in the UK. Loans can have annual percentage rates (APRs) as high as 99.9% over the course of three years, as well as punitive late payment fees that add to the original cost.
- Evidence provided by rent-to-own firm Brighthouse last month as part of the Treasury Committee’s household finances inquiry also revealed about half of its rent-to-own agreements do not get to the point of ownership.
Last year, Citizens Advice helped more than 5,000 people with problems relating to their rent-to-own loans, of which:
- The average amount of rent-to-own debt was £972
- The average overall debt was significantly higher at £8,193
- 63% had dependent children
- Our clients were three times more likely to be female than male.
Gillian Guy, Chief Executive of Citizens Advice, said “Our latest research, along with the FCA’s intervention in the rent-to-own market last week, make it clear that there are significant problems in the sector that need to be addressed. The FCA needs to put in place measures to protect people from expensive borrowing and spiralling debts. What can appear to be a lifeline shouldn’t become a tripwire. The evidence is clear – the cap on the payday lending market secured a much better deal for consumers. The FCA should use its upcoming high-cost credit review to build on the success of the payday loan cap and extend the same protections to rent-to-own customers.”
Citizens Advice is also concerned affordability checks are not always identifying where clients may struggle to meet the cost of their rent-to-own agreements. Currently, while all lenders have to conduct these checks, there are no rules on what they have to include. For example, one person we helped was referred to Citizens Advice as she owed more than £9,000 to a rent-to-own provider through 12 hire purchase agreements. She was unable to work due to her long-term health conditions and was struggling to meet other bills such as rent, council tax and food.
The charity is asking the FCA to introduce rules for high-cost short-term credit providers to give clarity about what these checks should include, for example proof of income, to prevent people from being lent money they cannot afford to repay.
Figures from the report also show:
- People with rent-to-own debts are more likely to be behind on other important payments, such as energy or council bills
- One in two rent-to-own customers have borrowed to meet payments.