Rent to own cap protecting customers, FCA says

4 December 2020   By Dr Lucy Brown, Editor

Analysis a year after rent to own (RTO) cap was implemented shows rules having an impact on how much customers are paying.

The Financial Conduct Authority's (FCA) evaluation found the average base prices for products offered by RTO firms is lower than they were a year ago.

Benchmarking prices against mainstream retailers was a core principle of the cap which came into force in April 2019.

Since then, BrightHouse, the biggest name in the RTO sector, has collapsed, although the FCA believe this had little connection to the cap.

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Credit: Piotr Swat/

Lower prices

Under the cap, RTO firms need to benchmark the base prices of their products against the prices charged by three high street retailers.

These benchmarking prices also include delivery and installation charges to ensure firms don't recoup any losses in that way, but other add-on products aren't counted.

FCA analysis of the pricing levels in 2018 before the cap was implemented showed the average price was 37% higher than the prices found on the high street.

In 2020, after the cap was brought into force, prices were only 16% higher than those offered by mainstream retailers.

The FCA estimate the impact of the price cap saved customers an average of £95.

Revenue recovery

The price cap rules also explicitly prevented firms from using add-ons or connected goods and services to bolster their income following the implementation of the cap, also known as a form of revenue recovery.

Having looked at the evidence, the FCA say they are satisfied the anti-avoidance measures they put in place are working, so firms are not bumping their costs up by using add-ons or stealth services.

Their experience of using the anti-avoidance measures from the start rather than patching up loopholes later has prompted the FCA to highlight their usefulness if any price caps are put into place for similar products in the future.

The third clause within the price cap was not covered in the FCA's report, but it was more straightforward than the other two.

It capped the total amount a customer could be charged in interest and fees to 100% of the base value of a product, meaning a TV at £250 could not cost more than £500 in total.

RTO sector

The implementation of the price cap in April 2019 was considered long overdue by many, especially after the FCA brought forward their review of the RTO sector in 2015.

These investigations take time, and the FCA did eventually conclude customers were being treated unfairly by the pricing structures of RTO firms.

Yet customers who need to rely on RTO companies for household goods are still paying a premium of 16% compared to the costs if they were able to buy the same goods on the high street.

The RTO sector lost one of its biggest players in March 2020 when BrightHouse collapsed just after the first coronavirus lockdown.

In their report, the FCA commented on the collapse, saying they believed other factors had been responsible rather than the price cap.

For example, the company had reported significant losses before the price cap was introduced in April 2019, and they had been ordered to pay £14.8m in redress by the FCA in 2017 when it was judged they had not been acting as a responsible lender.

The more immediate problem for BrightHouse, however, was that their in-store model could not cope with the restrictions imposed by the coronavirus crisis.

The FCA acknowledged the future of RTO lending looks very uncertain following BrightHouse's exit from the market.

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