FCA proposes cost of credit cap in rent to own sector
The Financial Conduct Authority (FCA) has proposed a price cap in the rent to own (RTO) sector for domestic goods. The cap, which follows a successful similar scheme introduced in the payday lending sector, will come into force on 1st April 2019 and will restrict credit charges to no more than the price of the product itself.
Under the new measures, RTO firms will also be required to benchmark the cost of their products against the market when setting prices and will also be required to provide a two day cooling off period for extended warranties.
The FCA believes the RTO customers are some of the most financially vulnerable in society. The regulator has estimated that the cap could save around 400,000 consumers up to £22.7m a year.
Announcing the new measures, Andrew Bailey, Chief Executive of the Financial Conduct Authority said “Today’s measures are designed to bring down very high prices in the rent-to-own sector, which is used by some of the most financially vulnerable in our society. A cap will prevent firms charging over the odds for essential everyday items like cookers or washing machines. We believe a cap is the only intervention that will effectively tackle the highest prices.”
Responding to the proposals, David Rodger, Chief Executive of Debt Advice Foundation said ‘We welcome this long overdue intervention, which will undoubtedly help some of society’s most vulnerable people. The proposed cap directly tackles the key issue of financial detriment caused by these morally indefensible mark-ups. However, the FCA has acknowledged that significant challenges remain regarding the provision of adequate alternatives to the RTO sector as well as access to affordable main stream credit for many people on low incomes.”
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