JFF recently submitted a joint response to the Financial Conduct Authority (FCA) with the Church of England’s Mission and Public Affairs Council, relating to its proposals to introduce price controls on the Rent-to-own (RTO) market which is made up of providers like Bright House, Perfect Home and others who lease goods to consumers who pay weekly or monthly payments. The full response can be found here.
RTO credit arrangements often result in consumers paying significantly more for a product than they would if they were to pay it up front from a mainstream retailer. High costs are a huge source of harm to RTO customers, contributing to the ‘poverty premium’, whereby low-income families unjustly pay more for the same goods and services as better off families. In our experience, speaking to some of those who have participated in our Cash Smart Credit Savvy financial wellbeing course, people often go to RTO stores as a result of low income, low levels of confidence around managing money, and feeling like there is no alternative.
We therefore support the FCA’s proposal to introduce a 100% price cap in the Rent to Own market, and related measures, which we think will go a considerable way towards tackling the poverty premium and the harm to wellbeing that high cost credit causes.
Having said that, we feel that to make a real difference to RTO customers, many of whom we reach through our work in communities, the proposals need to be strengthened in three important ways:
- Arrears Charges need to be included in the price cap: our concern is that if overdue payment charges are not included in the main cap, firms might try to ‘recover’ the cost of bad loans without breaching the cap. Arrears charges are included in the cap on payday loans, so we think the same should apply in the RTO market.
- The price ‘benchmarking’ process needs to be strengthened, to reduce the risk of the system being cheated. The FCA have proposed that to control the price of RTO goods, firms will have to ‘benchmark’ their prices against three mainstream retailers. We are worried that under these proposals, it would be possible for firms to ‘game’ the system by selecting their own comparators for each item, and setting the price of the product at one of the highest prices in the market, undermining the cap. We think that this measure should be strengthened further.
- Theft and Accidental Damage Cover: A woman that JFF worked with through CSCS was paying for TAD cover on four different RTO items. Like 90% of other RTO consumers, she had purchased cover directly from the provider. When we helped her calculate the total cost, we found that the amount she paid over just three months would have been more than enough to cover the cost of home contents insurance for an entire year from an external provider. We think this is unfair, and suggested in our submission that new requirements on RTO firms to enable customers to make informed decisions about whether to buy providers’ own theft and accidental damage cover should be introduced to help customers make well-informed decisions out TAD cover.
All of these measures will only be successful however, if they are introduced alongside ethical alternatives to high cost credit. In our response we highlighted Fair For You (FFY) which through its loan product and service, provides low income households with white goods and other household items at reasonable cost, you can find out more about what they do here. Through our Cash Smart Credit Savvy programme we signpost individuals to FFY and encourage churches who are part of our network to publicise it. We are really encouraged by the FCA’s continued efforts to tackle the barriers to availability and awareness that ethical alternatives frequently face and look forward to these progressing.
We hope that the FCA will take on board our suggestions, and look forward to feedback on the consultation, which will be published in March.