MPs ponder crackdown as rent-to-own store triple purchase costs

Customers of rent-to-own stores usually lack the cash and credit to buy household items from ordinary retailers. This is often what drives them to agree to onerous terms that vastly increase the total costs to obtain the items that they need for their homes.

MPs have taken notice of the impact that these arrangements are having on the poorest members of our communities. Estimates reveal that about half of all customers of these firms are receiving some benefit payments. They are already struggling to get by and cannot afford to pay more than others for simple household essentials. Yet these customers are paying triple the cost, with one in ten facing repossession of purchases that they cannot maintain payments on.

There are three primary dynamics that are piling on the expenses to lower income families:

1. The base purchase price is already inflated. Many appliances in Brighthouse, PerfectHome and Buy As You View feature a substantially higher initial cost than their mainstream store rivals charge. Often the prices are hundreds of pounds more for the same model.
2. People with bad credit are often coerced into obtaining insurance coverage that protects the store in the event that they can no longer make their payments. These insurance products are one-sided in coverage and carry exceptionally high fees for the amount of coverage that they provide. Much of the fee is returned to the retailer as a sales commission.
3. Extended warranties are often added to the purchase. These are usually not worth the added cost and are not even useful until after the manufacturer’s warranty expires.
4. Interest rates of 90% APR or higher are charged on the purchase price, extended warranty and the included insurance product. This pushes up the prices paid for all three components of the purchase.

It is not uncommon for a customer of a rent-to-own firm to pay more than three times what they could have paid for the same item if they had the cash to shop at regular stores.

Rent-to-own firms claim that they provide an important service. They note that their customers would not be able to obtain many necessary household goods without these purchase agreements. They claim the fees are necessary in order to protect them from higher instances of default.

Consumer advocates point out that actual defaults would be much lower if customers were not required to hand over three times the cost in order to obtain necessary items for their homes. What cannot be disputed is that poor families are increasingly struggling to get by, and overpaying for necessary items is hurting their chances for self-sufficient living. Eventually they get pushed out to benefit payments to avoid homelessness.

The Financial Conduct Authority (FCA) is also taking note of these transactions. The FCA is concerned that contracts are being pushed on vulnerable customers who cannot fully understand the terms of the purchase. Many have no understanding of how much they will pay over the life of the contract. Additionally, opaque agreements are making it difficult for proper comparisons with other competitor costs.

FCA has been taking steps against predatory lenders, most notably with storefront payday loan firms. With the added pressure from MPs who seek to prevent financial harm to those who live within their districts, FCA is increasingly likely to target these rent-to-own retailers to force them to play fair.

BrightHouse claims that they are already making changes to their practises by voluntarily reaching out to the FCA to comply with requests. Any changes at this time are limited to the way that the products are advertised. It changes nothing in the actual process for lumping additional costs onto inflated prices and then charging oppressive interest rates on the entire package.