Hundreds of thousands of cash-strapped customers who buy TVs and washing machines through rent-to-own (RTO) schemes are paying up to three times more than the high street cost, a report published today has found.

Around 350,000 low-income households are estimated to be customers of RTO companies such as BrightHouse, PerfectHome and Buy as you View, where they enter into a credit agreement to buy household goods with payments spread over two to three years.

The schemes "appeal" to those who may otherwise struggle to find the cash for the item upfront (see our Debt Help guide if you're struggling).

But the All Party Parliamentary Group (APPG) on Debt and Personal Finance's report into the industry has found that RTO customers face APRs of up to 94.7% in addition to fees for bolt-on insurance cover that can double or even triple the cost of buying and owning household goods.

In December 2014 for example, the APPG found that a 7.5kg Hotpoint tumble dryer cost between £229 and £279 from Currys, Co-Op and Argos. However the same item from BrightHouse cost £780 including interest, compulsory insurance and service cover.

Similarly in September 2014, a Samsung freezer with a five-year service plan cost £644 at John Lewis, but at BrightHouse, the total amount repayable over three years stood at £1,716, three times the price at John Lewis.

Worryingly RTO companies sell goods, which are marketed to mainly low-income customers who can't afford higher prices. But those who fall behind on payments face the threat of having the goods repossessed, no matter how much they've already paid towards the item.

Martin Lewis
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Poor practices 'rang alarm bells'

The APPG, which is formed of cross-party MPs, is now calling for the Financial Conduct Authority (FCA) to:

  • Carry out a review into the possible mis-selling of add-on insurance products that customers already had or did not need.
  • Tackle inadequate affordability assessments.
  • Introduce rules to better protect those who may run into payment difficulties.

It also wants the FCA to work with RTOs to ensure the following:

  • Additional service-agreements, warranties and insurances are separately priced so that each individual cost is clear to customers.
  • Health warnings on promotions are clear and state that the customer won't own the good until the last payment, and that failure to pay can result in repossession.
  • The total cost is highlighted, not just the weekly payment amount.
  • Customers should be given the manufacturer's model number for goods they sell so they can easily compare prices. For exclusives, companies should give a 'closest match'.

RTO's are subject to regulation by the FCA and during the next few months, they will need to show that their business models are not harmful to customers in order to continue to trade.

During an evidence session held in December, the results of which are published in the today's report, the FCA told MPs that poor practices in the sector "rang alarms bells". As a result, the FCA is due to assess the industry.

A spokesperson for the FCA says: "We are currently working with the larger firms in the rent to own sector to better understand their business models. These firms will be assessed in detail this summer as part of the application process for full authorisation.

"During the assessment process we will be checking to ensure that firms are operating within our rules, including affordable lending and that customers in financial difficulty are treated fairly." 

Report is 'disappointing'

A spokesperson for BrightHouse, which has 291 stores nationwide, says: "BrightHouse is always willing to engage with those who have an interest in our business and we were open and transparent in our dealing with the APPG.

"It is disappointing that the report does not reflect the healthy discussion which took place. We, and others, presented evidence that showed that the rent-to-own sector is competitive, meets the needs of its customers, and offers a range of measures to help customers should they find themselves in difficulty.

"We are already working closely with our new regulator, the FCA, and are constantly exploring ways to make our offer to customers even more transparent and competitive. For example, we are in the process of breaking out the cost of the individual elements of our service package. This information will clearly be shown on all our price tickets from later this month."

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