Rent-to-own companies will be hit with a price cap as the City watchdog cracks down on the sector.
The schemes, which allow customers to purchase household items such as fridges and washing machines on credit, will be subject to a cap limiting the cost of the product and the charge for credit, the Financial Conduct Authority (FCA) announced today.
Under the proposals, which will be introduced in April next year, the charge for credit can not exceed the price of the product, after the FCA found that some customers had paid up to four times the average retail price.
The FCA will also ban firms from selling extending warranties at the point of purchase by introducing a two-day cooling off period.
Only a third of rent-to-own customers are in work, most are on low incomes and are likely to have missed a bill payments in the last six months.
FCA chief executive Andrew Bailey said: “Today’s measures are designed to bring down very high prices in the rent-to-own sector, which is used by some of the most financially vulnerable in our society.
“A cap will prevent firms charging over the odds for essential everyday items like cookers or washing machines. We believe a cap is the only intervention that will effectively tackle the highest prices. If implemented it will save consumers up to £22.7m a year from excessive charges.
“We want to stop consumers having to pay many multiples more than the price of a product on the high street. These changes build on the measures we have already taken across the high-cost credit sector.”
A spokesperson for Brighthouse, the UK's largest weekly payment retailer, said: "Brighthouse has been working closely and constructively with the FCA over a number of years. This comprehensive process has led to many changes in the way we operate as a business and serve our customers.
“We’re going to carefully consider today’s announcement, while continuing to offer those excluded from mainstream credit ways to get the household goods they need.”
The consultation on the proposals will run until 17 January.