Report highlights high cost of rent-to-own

The Financial Conduct Authority has released a report on rent to own (RTO) retailers, as part of their investigation into high-cost credit. RTO companies provide household appliances that are in effect “rented” for a period of time, with buyers making weekly or monthly payments until the full amount of the credit agreement has been settled.

The report revealed that consumers often pay much more for goods on a RTO agreement than they would if they purchased that item from a high street retailer or used other forms of high cost credit.

The cost of a rent to own item is two-fold. Firstly there is the cost of the item if someone wanted to buy it outright- the report notes that this price is already much inflated in comparison to other sellers. The FCA used ‘typical’ high street prices (rather than the cheapest price available) to assess the difference and found that RTO firms’ cash prices were on average 45% more expensive than high street equivalents.

Secondly is the interest rate, which the FCA states is “typically offered at 69.9% APR with some electrical items priced at 99.9% APR”. This means that consumers are paying high interest on an already highly priced item.

Further to this, the report mentions that 90% of consumers choose to purchase Theft and Accidental Damage (TAD) cover from rent to own firms and around 70% of consumers decide to purchase extended warranties.

The report concludes;

“We anticipate that a price cap at the appropriate level may achieve the right balance between avoiding indebtedness for some and continued access to RTO at a lower cost for others”

“The RTO market services a particularly vulnerable group of people, those that are on a low income and have limited access to mainstream credit. This report shows that those who already struggle with money are getting a much worse deal. I’m pleased that the FCA are investigating the impact of this kind of high-cost credit and hope they effect some real change when the recommendations are introduced in April 2019.

“The difficulty for the FCA is creating a solution that tackles both the cost of the credit and the premium that customers are already paying on the products without creating barriers that prevent people from accessing household goods that they need.”

If you are struggling with your rent to own repayments, contact our helpline.