The Financial Conduct Authority (FCA) has confirmed the introduction of a price cap to protect some of the most vulnerable customers in the UK in the rent-to-own (RTO) sector. The cap will be introduced from 1 April 2019 and will save consumers in the UK up to £22.7 million a year.
In the Policy Statement published today the FCA has confirmed the following measures will apply to the RTO sector:
- setting a total credit cap of 100%
- introducing a requirement on firms to benchmark base prices (including delivery and installation) against the prices charged by 3 mainstream retailers
- preventing firms increasing their prices for insurance premiums (eg theft and accidental damage cover), extended warranties, or arrears charges, to recoup lost revenue from the price cap
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said: ‘The actions we are taking today build on our wider work on high-cost credit and will save some of the most vulnerable consumers in the UK millions of pounds. This price cap has been designed to target some of the most excessive prices in the rent-to-own market. The measures come into force from 1 April and we will be keeping a close watch on firms’ compliance. We will review the impact of the price cap in 2020 and if further work is needed to protect these customers we are prepared to intervene again.’
Save hundreds of pounds
Currently, in some cases, RTO consumers are paying in total more than 4 times the retail price of some goods. The cap is intended to tackle those very high prices. Under the new rules, consumers will save hundreds of pounds on household products. In November 2018, we published a Consultation Paper outlining our intention to introduce a price cap in the RTO market, to protect vulnerable consumers from the high prices being charged in this market.
Feedback from consumer
The majority of respondents to the consultation agreed with the FCA’s assessment and the need to intervene in this market. Feedback from consumer groups in particular showed strong support for a price cap, which they believe would address the harm caused by high prices. The FCA has committed to carry out a further review to assess the impact of the price cap, which will take place in April 2020.
Awereness of high-cost credit
The FCA is continuing to promote the availability and consumers’ awareness of alternatives to high-cost credit. As set out in the November 2018 Consultation Paper, this includes working with Government and other stakeholders to support their initiatives. The next update on the FCA’s alternatives work will be published in the second quarter of 2019.