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."
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."
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.
We pay for your stories! Do you have a story for The Sun Online Money team? Email us at money@the-sun.co.uk