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FCA introduces rent-to-own price cap

FCA confirmed today that it would be introducing a price cap in the rent-to-own (RTO) market.  The regulator said that it wanted to “bring down prices on RTO agreements where the overall costs to consumers are high compared to other retailers’ prices.”

In November 2018, FCA explained in CP 18/35 that it believed its intervention was necessary because its in-depth analysis and survey of RTO consumers had found that a highly vulnerable group of consumers were paying too much for household goods.

Although FCA acknowledged there was a cost to firms providing credit to individuals with low credit scores, it said that the prices firms charge for servicing a vulnerable consumer base can cause harm simply because the costs are too high.

PS19/6 published today states that FCA’s price gap is designed to bring down prices on RTO agreements where the overall costs to consumers are high compared to other retailers’ prices. It will do this by:

  • setting a total credit cap of 100%;
  • introducing a requirement that firms must benchmark product base prices (including delivery and installation, but excluding any add-on products like warranties) against retail prices; and
  • preventing firms increasing their prices for other goods and services sold with an RTO agreement – e.g. extended warranties – to recoup lost revenue from the price cap

The new rules, which will appear in the amended CONC sourcebook, will take effect from 1 April 2019. They will apply from that date to any new products RTO firms introduce to the market for the first time.

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FIN. Team