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25.10.2016

Rent to own

Clients may have seen a news item on the BBC this week about rent-to buy firms such as Brighthouse and Perfect Home. Click here to view.

Brighthouse has also previously been the subject of an investigation by the Guardian newspaper Click here to view.

Rent-to-own firms allow customers to pay for household items in instalments, with high interest rates, until they own it.

Citizens Advice has also expressed concerns about these companies and worries that vulnerable people are being pushed into further financial difficulty.

Citizens Advice has said that it receives thousands of complaints every year about these types of companies, and has evidence suggesting affordability checks were not always being properly conducted by firms.  It said it encountered people with up to several thousand pounds’ worth of debt, with six or seven items.

The companies offer all types of household goods from furniture, kitchen appliances to televisions, gaming consoles, computers and mobile phones.

The chief economist at Citizens Advice, Hugh Stickland, has said that it sees “people in vulnerable situations pushed into further financial difficulty – and then, of course, emotional stress and worry.  Too often we think these firms offer very little in terms of protection and don’t do decent enough affordability checks.”

During an investigation for the BBC’s Victoria Derbyshire programme, the former Labour leader Ed Miliband called for better and clearer regulation of the rent-to-own sector.  He said, “it seems to me that too often rent-to-own companies are taking advantage of people who feel they have nowhere else to go.  The regulator needs to stop the most vulnerable people in our society being taken advantage of.”

The Financial Conduct Authority, which has regulated these companies sector since 2014, says if companies have reason to believe a customer has a learning disability they must take reasonable steps to assist them in making an informed decision, and decide whether it is appropriate to lend.  But Mr Miliband, who has campaigned against rent-to-own companies and supports credit unions, thinks this does not go far enough.  He wants the firms to be regulated in a similar way to payday loan companies, and see a cap on the total amount they can charge for a product.

“I have been told customers can end up paying three times the worth of the item, or if they miss a payment or are late, the costs can spiral,” he said.

The difference in an item’s worth and the amount customers pay overall is due to additional costs for delivery and installation, a mandatory warranty and high interest rates.  One mid-range washing machine on BrightHouse’s website costs £358 but the firm’s customers must also pay £55 for delivery and installation, and £136 for a warranty.  With interest rates on this product of 69.9% a year, if the payment was spread over three years – as the firm’s own price model sets out – the washing machine would cost a total of £1,092.

Our customers who are making every effort to manage within a tight budget in order to repay as much of their debts as they can will often experience the stress of a cooker or a washing machine breaking down, furniture breaking or needing to buy household items due to a change in their circumstances.  At times like these customers may think that rent-to -own companies provide a practical solution as they do not have savings that they can use to buy the items outright and the relatively small monthly payments can seem manageable but they will end up paying many times the actual purchase price.
If you find yourself in this position, then before you consider turning to one of these companies you should talk to us and there are ways in which we can help you.

If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.