Rent-to-own business BrightHouse has agreed to return more than £14.8m to its customers, after an investigation by the Financial Conduct Authority (FCA) revealed it was providing unsuitable lending agreements to customers at risk of falling into financial difficulty.
The household goods retailer will pay back the sum to 249,000 customers in respect of 384,000 agreements, through cash payments and balance adjustments.
BrightHouse is currently being circled by its bondholders, who are thought to be debating a debt-for-equity swap to wrest control of the business from its private equity owners Vision Capital. Earlier this year the business reported a drop in revenues, and said it faced difficulties in refinancing £220m of bonds due next year.
“During the time in question, BrightHouse was not a responsible lender and failed to meet our expectations of firms in this sector. I am pleased that it has agreed to provide redress to those customers affected by these historic practices,” said the FCA's Jonathan Davidson, executive director of supervision.
“This scheme continues our work with the rent-to-own sector to resolve the concerns we have previously identified.”
Under the FCA's supervision, BrightHouse has identified two sets of customers which it proposes to redress. The first set, covering around 81,000 customers, are those whose circumstances had “not been assessed properly” when they took out the loan and may have had difficulty repaying it.
These people will together receive around £10.1m, as those who handed back the goods will be payed back the interest and fees they were charged plus a compensatory interest of eight per cent. Those who retained the goods will have their balances written off.
The second set of customers are those who made the first payment under an agreement with the firm which was then cancelled before the goods were delivered. The first payment was not returned to all customers.
BrightHouse will return the first payment plus a compensatory interest of eight per cent, totalling around £4.7m.
“This firm seems to have regarded its customers as cash cows and failed to take account of the FCA’s core mantra, that of treating people fairly. It has been taught an expensive lesson,” says Bill McCaffrey, a financial services partner with law firm CMS.