Proposals to cap the cost of goods purchased such as fridges and cookers through rent-to-own providers have been confirmed by the Financial Conduct Authority (FCA).
From April 1, 2019, the regulator will limit the interest customers pay on the products to 100 percent of the amount borrowed.
Currently, in some cases, rent-to-own consumers are paying in total more than four times the retail price of some goods.
The price cap will mean that if a fridge costs £300, customers will pay no more than £600 in total, including the cost of credit.
The move also introduces a requirement on firms to benchmark base prices (including delivery and installation) against the prices charged by three mainstream retailers.
It also prevents firms increasing their prices for insurance premiums, such as theft and accidental damage cover, extended warranties, or arrears charges, to recoup lost revenue from the price cap.
Christopher Woolard, executive director of strategy and competition at the FCA said: “The actions we are taking today build on our wider work on high-cost credit and will save some of the most vulnerable consumers in the UK millions of pounds.
“This price cap has been designed to target some of the most excessive prices in the rent-to-own market. The measures come into force from 1 April and we will be keeping a close watch on firms’ compliance. We will review the impact of the price cap in 2020 and if further work is needed to protect these customers we are prepared to intervene again.”
A spokesperson for BrightHouse, the largest rent-to-own provider in the UK, said: “We remain committed to offering our customers, who are excluded from mainstream credit, great service and the best prices possible for the products they require. Over the coming months we will fully implement the changes that have been confirmed today.”
The FCA said it will carry out a further review to assess the impact of the price cap, which will take place in April 2020.
Peter Tutton, head of policy at StepChange Debt Charity, said: “We welcome the fact that the price cap will apply both to the cost of credit and to the underlying cost of goods that can make these agreements expensive, even compared to other types of high cost credit.
“However, rent to own and other high cost credit will continue to put a strain on low income households who have little choice but using credit to pay for essential goods. So we are pleased that the government is looking at the feasibility of a no interest loans scheme for the most hard-pressed households. This important intervention by the FCA still needs to be accompanied by better affordable alternatives to rent to own.”