Mon 10 Dec 2018

Update on the FCA's Rent-to-Own proposals: new price cap and a point of sale ban on extended warranties

The FCA has published a new Consultation Paper on "Rent-to-own and alternatives to high-cost credit" CP18/35

The FCA has accelerated the proposed imposition of a price cap in the Rent-to-Own (RTO) market following the outcome of its survey of 1200 RTO customers and in light of international case studies.  The survey supported the FCA's concerns that RTO customers are a 'highly vulnerable group of consumers who were paying too much for household groups'.  Its findings included evidence of a low understanding of the relationship between weekly payments for goods and the total cost of borrowing.  The consumers' focus was primarily on keeping weekly payments low, and approximately one third of RTO customers had not looked at the product price at all or, where they did, had not shopped around.

CP18/35 propose that a price cap be introduced on 1 April 2019.  The cap is two fold:

  • RTO lenders must set their base prices for goods, including delivery and installation, at or below a benchmark level calculated by reference to the prices quoted by other retailers.

  • There will be a total price cap of 100%, to ensure that customers do not pay credit costs higher than the cost of the goods, including delivery and installation.

Where agreements breach the total credit cap of 100%, the obligation to pay the credit charges would be unenforceable against the customer.

The FCA also propose to accelerate the imposition of a point of sale ban for RTO firms regarding extended warranties, with the changes due to come into effect on 22 February 2019.  The FCA rejected calls from some quarters for an outright ban, acknowledging the value of extended warranties over and above a manufacturer's warranty.  Instead there will be a minimum two day deferral period before a customer can decide to purchase an extended warranty from an RTO firm.  Information requirements imposed on RTO firms at the point of sale will also assist customers to reflect and consider the benefits of the warranties before making a decision.  The cost of any extended warranties are excluded from the price cap.

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