Review of price cap for rent-to-own retailers

The FCA's follow-up review will start in April 2020.

What is happening?

In 2019, the Financial Conduct Authority (FCA) introduced a price cap on retailers selling household goods on a rent-to-own “buy-now, pay-later” basis (FCA Rules).

Under the FCA Rules, rent-to-own retailers are:

• prohibited from charging interest of more than 100%
• required to benchmark base prices (inclusive of delivery and installation) against three other mainstream retailers
• prevented from increasing their prices for other services (such as insurance premiums, extended warranties, or arrears charges) to recoup lost revenue from the price cap.

Why does it matter?

The FCA Rules demonstrate a continued focus from the FCA on the consumer credit market and signify a shift from the regulator into pricing regulation in its pursuit of protecting consumers.
Whilst the FCA Rules are intended to protect vulnerable consumers from high costs of credit, the FCA acknowledges that they may limit the credit options available to consumers. 

Similarly to its crackdown on the pay-day lending model, which has led certain lenders to close, the FCA appears to be expecting an impact on the business models of some retailers or their approaches to rent-to-own.

The FCA has also confirmed that it will monitor the market closely for compliance and carry out a follow up review, starting in April 2020.

What action should you take?

1. If they have not already done so, retailers who offer rent-to-own products should consider whether their business models and practices are impacted by the FCA Rules and whether any changes to their business model necessitate a notification to the FCA under the Supervision Manual.

2. The FCA makes clear that firms should not attempt to put in place any new (or amended) business models, such as other forms of credit, which could lead to the same type of harm/outcome that the FCA Rules are trying to prevent.

If you would like any assistance, please contact Jonathan Charwat or your usual RPC contact.