Interest on rent-to-own purchases capped to save people millions
For those living in poverty and low-income households, shopping for essential goods can be literally more expensive. Every family home needs furniture and appliances. But affordable credit, never mind paying for such products up front, is beyond the reach of many single parent families, and others on a low income. Hire-purchase or rent-to-own stores have up until now been free to charge huge interest rates, meaning that customers pay back the sale price of their goods several times over, even if the weekly payments are small. This means that poor families are forced to go without or pay above the odds, as they cannot access lower interest rates available to credit card or store card customers. Needless to say, this simply tightens the grip of poverty.
Action by the Financial Conduct Authority (FCA) means that from April 2019, the total interest that firms such as BrightHouse, PerfectHome and others can charge will be capped at 100% of the price of the product. This matches the regulations imposed on payday lenders. Prices also have to be in line with what competitors charge.
The new regulations come into force on 1st April 2019, and could save consumers £22.7 million a year. In a report, the FCA found that the 300,000 customers paying weekly bills to rent-to-own stores are among the most financially vulnerable in our society: only 1 in 3 are in work; 1 in 4 are single parents; and 1 in 4 have defaulted on a bill in the last 6 months.
In statements released in the media, rent-to-own firms such as BrightHouse state that they believe customers should be able to choose how to spend their money. Some may see higher interest rates as an inevitable consequence of having poor credit, yet, this argument simply traps those who cannot afford to buy goods up front even tighter in poverty.
OPFS frequently hears from parents on universal credit or other benefits who do not have enough money to furnish their homes. We work frequently with single parent families needing furniture, appliances and homeware, and can refer people to hardship funds and charities who can help parents without having to resort to extortionate rent-to-own schemes. Call our helpline on 0808 801 0323 for advice.
You can also use the Turn 2 Us website to find funds and charities that you can apply to for financial assistance, and to check your entitlement to benefits. There is often an alternative to highstreet rent-to-own firms, so don’t rely on exorbitant interest rates without looking at your options.