Crackdown on High Interest Lending Announced by FCA
“Rent-to-own” shops that sell appliances and furniture for small weekly payments but with a high interest rate face a price cap. However, the financial regulator will not rush to impose the same restrictions on bank overdrafts.
The Financial Conduct Authority (FCA) has spent nearly two years looking at the cost of high interest borrowing. It has now outlined a package of plans for rent-to-own, doorstep lending and catalogue shopping.
High-cost credit is used by three million people in the UK. Single-parents aged 18 to 34 are three times more likely to have a high-cost loan – such as a payday loan, doorstep loan or pawnbroking loan – than the national average.
“The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer,” said FCA chief executive Andrew Bailey.
Campaigners had called for a cap on the interest and charges faced by those using high-cost credit, including overdrafts. They said that cap on the cost of payday loans, introduced in 2015, should be a template for the rest of the high-cost credit market.
About 400,000 people have outstanding debt with rent-to-own firms such as BrightHouse from which they buy household appliances, paying the money back over three years. After interest, they can end up paying many multiples of the cost price.
The FCA said it had seen cases when people had ended up paying more than £1,500 for essentials like an electric cooker that could be bought on the high street for less than £300.
“The FCA believes the harm identified in this market is sufficient in principle to consider a cap on rent-to-own prices. It will now carry out the detailed assessment of the impact that a cap could have on the rent-on-own sector and how it might be structured,” the regulator said.
Such a cap would not be in place before April 2019.
John Glen, Economic Secretary to the Treasury, said the measures would help the most vulnerable avoid being stung by “dodgy deals”. That includes people like Kenneth Murray, who says he had to buy a laptop from a rent-to-own firm business as he could not get credit from a high street electrical store.
“I had multiple debts that I was trying to juggle, and no stable source of income. I ended up taking out loans to pay loans,” he said, although he has now managed to halt this cycle.