Price cap on rent-to-own firms will start next month after The Sun’s Stop The Credit Rip-Off campaign
The Financial Conduct Authority will force firms to limit the cost of the product and total amount they can charge in credit - and it will help save consumers £22.7million a year
INTEREST rates and fees charged by rent-to-own firms are to be capped from April to help cash-strapped Brits, in a victory for The Sun.
Almost half a million people use rent-to-own firms like BrightHouse and Perfect Home, which charge up to four times the high street price for household furniture and electrical items.
In March last year, The Sun launched its Stop the Credit Rip-Off campaign to help millions of families who rely on high cost credit like rent-to-own and doorstep loans.
We called for firms to stop charging customers more than double what they'd borrowed.
In November last year, the Financial Conduct Authority (FCA) - the city watchdog - said it will force firms to limit the cost of the product and total amount they can charge in credit - and today it confirmed the cap will come into effect on April 1.
Firms will not be allowed to charge more in interest than the cost of the product - and it will help save consumers £22.5million a year.
The price cap will apply to any new products rent-to-own firms introduce to the market for the first time from April.
For products that these firms are already offering, the rules will apply either at the point the rent-to-own firm raises the price or July 1 - whichever happens first.
The FCA is also introducing a requirement on rent-to-own firms to benchmark their base prices (including delivery and installation) against the prices charged by three mainstream retailers on the high street - but they'll get to choose which retailers themselves.
Why we want to Stop The Credit Rip-Off
WE never want you to pay more than double the amount you've borrowed - whether it's for a new sofa or a loan to help pay your bills.
That's why The Sun launched its campaign calling for a cap on the total cost of rent-to-own loans and doorstep lending at double the original price or loan amount back in March last year.
Now, it has cofirmed that from next month rent-to-own firms will have the amount of interest they can charge capped.
A similar cap was introduced for payday loans in 2015 and since then the number of people struggling with unmanageable debts to those lenders has more than halved, according to Citizens Advice.
People on the lowest incomes, living in the poorest places, are paying a poverty premium - up to 7million people have resorted to high-cost credit, according to the Department for Work and Pensions.
People whose wages or benefits don't stretch far enough need to borrow from rent-to-own or doorstep lenders to help pay for things such as an unexpected bill or to furnish their homes.
These come with exorbitant rates of interest - more than 1,500 per cent in some cases of doorstep lending.
We want stricter borrowing checks on doorstep lenders, better and affordable alternatives and more help for those struggling to pay back high cost credit debts.
It is scandalous that one mum who borrowed cash to help keep a roof over her family's head and ended up paying back over THREE times the original amount.
It's time to stop the credit rip-off.
Rent-to-own shops will still be able to charge for insurance and warranties on top of that, but the FCA said it would stop firms from increasing their prices for insurance premiums, extended warranties, or arrears charges to make up for lost revenue from the price cap.
If the firms don't comply with the rules, they risk being slapped with hefty fines by the FCA.
Earlier this year, BrightHouse said it plans to shut 30 stores and axe 350 staff as part of a "regrettable" restructuring plan.
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 April 1 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."
Tory MP Nicky Morgan, chairwoman of the Treasury Committee, welcomed the price cap and said it was a "much-needed step in the right direction".
I had to choose between heating my home and paying BrightHouse bills
SINGLE-MUM of eight Georgina Hamm was forced to choose between heating her home and paying rent-to-own firm BrightHouse due to “extortionate” late fees and mounting debts.
The 49-year-old from Leyton, North London, took out more than 10 agreements for items including TVs, games consoles and mobile phones for her children.
She claims to have paid back £20,000 but owed thousands more to the firm.
At the worst point Georgina was paying BrightHouse £85 a week which left her £45 a week to feed her children, now aged between 11 and 33.
She told The Sun: “I’d stopped paying council tax, rent and other bills but I was too scared to miss a BrightHouse payment.
“We couldn’t afford to put the gas central heating on.
“They make it sound so easy, that you can buy these things for just a few pounds a week, but it’s actually very expensive.”
Georgina, who is a full-time carer for three of her children, claims she was charged £5 a day per item if her payment was late.
As she didn’t have a debit card, every Saturday she would make the 50-minute bus journey to the store in Wembley to pay in cash, sometimes bringing her younger children with her.
One Saturday she didn’t have the cash to make the payment and went in on the Monday.
She said: “They told me I owed £120 in late payment fees on top of what I needed to pay.
“I didn’t have that kind of money so I had to borrow it from a friend.
Two years ago, Georgina took out a debt repayment plan known as an Individual Voluntary Agreement (IVA) to help her pay off everything that she owed, including her debts to BrightHouse.
A spokesperson from BrightHouse said: "BrightHouse provides a unique way for those on low incomes, who are often excluded from mainstream credit, to get the everyday things many of us take for granted.
“We take our customers’ circumstances very seriously and we have extremely robust policies in place to ensure that the agreement is affordable and to identify customers who might be in a vulnerable position.
"Every BrightHouse agreement is uniquely flexible and we have a range of ways to help customers if they tell us that their circumstances have changed.
"These include rewriting the agreement, payment holidays, a payment plan, or an alternative product.
"Ultimately, we’re happy to accept the return of the product at any time and in any condition, leaving the customer with no debt and avoiding a default on their credit file."
Gillian Guy, chief executive of Citizens Advice, said: "This cap, which we’ve campaigned for, is a win for those struggling with the runaway costs of rent-to-own agreements.
"The FCA has recognised the massive harm caused by the crippling interest rates on rent-to-own deals. This cap will stop people from paying over the odds compared to similar products on the high street and falling into further debt when costs spiral out of control.
"Our evidence has repeatedly shown well-designed caps can reduce the harm high-cost credit can cause. Where these credit products cause more harm than good, for example doorstep loans, the FCA should move to introduce similar protections."
And Martin Lewis, founder of consumer website MoneySavingExpert said: "The rent-to-own sector is perhaps the most visceral example of the poverty premium in the UK.
"The fact that the most vulnerable with the least, pay four times as much for their electrical and white goods as everyone else is simply unjust, and it’s rightfully about time that the FCA cracks down on it.
"With rent-to-own, it must be remembered the scale of the rip-off. Not only are you sometimes charged nearly double for the product, they then lend it at up to 100 per cent APR, which means the costs aren’t gradually exploding out of control, they’ve been out of control from the start."
Alternatives to high-cost credit
IF you're in serious money trouble then here are some alternative places where you can go to for help:
Credit Unions - These are small not-for-profit groups that help people save and borrow money, and you may be able to get a loan. You can find out which credit union you are eligible to join by searching
Ask for an advance - You can ask your employer to give you an advance on your wages, or the JobCentre Plus may be able to arrange a short-term advance on your first benefit payment.
Foodbanks - These organisations help provide emergency food and toiletries to see you through to payday. You can see if you qualify for your nearest branch .
Check your benefits - Make sure that you are getting all the benefits that you are entitled to using this calculator from the charity .
Freecyle/Facebook groups/Gumtree and eBay - You maybe able to find free or cheap second-hand furniture.
Boost your credit score - If you're never rejected for credit then there are ways to show lenders that you can be responsible with your cash.
A spokesperson for PerfectHome told The Sun: "Today’s announcement follows a three-month consultation process on the FCA’s proposals for our sector, to which we have responded comprehensively.
"As an FCA-authorised business, we will adjust our offering to reflect the new parameters."
Meanwhile, a spokesperson for BrightHouse said: "We remain committed to offering our customers, who are excluded from mainstream credit, great service and the best prices possible for the products they require.
"Over the coming months we will fully implement the changes that have been confirmed today.";
More on money
Last year, Poundland stores began renting shop floor space to BrightHouse - a move which has been slammed by campaigners.
Around the same time, PerfectHome was ordered to pay £2.1million in compensation to 37,000 customers for forcing loans they could not afford.
Meanwhile, last month, BrightHouse started offering loans charging up to 149 per cent interest.
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