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The voice of Scotland’s vibrant voluntary sector

Published by Scottish Council for Voluntary Organisations

TFN is published by the Scottish Council for Voluntary Organisations, Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh, EH3 6BB. The Scottish Council for Voluntary Organisations (SCVO) is a Scottish Charitable Incorporated Organisation. Registration number SC003558.

Charities move to curb “legal loan shark” retailers

This news post is about 8 years old
 

​Charities move to curtail rent-to-own retailers who target low income Scots

Charities are planning to counteract the rising popularity of rent-to-own retailers - which have been compared to “legal loan sharks” - by creating their own ethical retailer.

The Esmee Fairbairn Foundation says it is to fund a rent-to-own retailer to challenge controversial companies like BrightHouse, Perfect Home and Buy As You View who make huge mark-ups and charge exorbitant interest by offering customers lengthy payment plans on household goods.

It comes as leading consumer rights’ organisations warn the rent-to-own sector is expanding on the back of low income families’ misery.

Debt charities have told TFN they are worried by the expansion of these retailers pointing to the high cost of goods and their largely low income clientele.

It is a strong example of a ‘poverty premium’ being levied on those least able to afford it - Keith Dryburgh

It has also been announced an all-party parliamentary group in Westminster will examine the “very high costs” charged by these retailers with a view on how to better protect vulnerable consumers.

All-party groups lack the clout of formally constituted parliamentary committees and have no legislative powers, but the inquiry hopes to impede the progress of these retailers in their current form.

Labour MP Stella Creasy branded BrightHouse and its competitors “legal loan sharks” for charging customers annual interest rates of up to 79.9%.

BrightHouse – by far the biggest of these retailers with 270 stores across the UK – advertises a new cooker with installation at £975 before interest.

The price of the same product plus installation from Curry’s is £470 - a 107% mark up on the normal retail price.

Once interest is added the total payable is over £1,800 - three times more than the cooker is worth.

Citizens Advice Scotland policy manager Keith Dryburgh said: “This mark-up pricing combined with high interest rates means that those struggling with finances are paying well in excess of what they should.

“It is a strong example of a ‘poverty premium’ being levied on those least able to afford it.

“There might be much better options such as social enterprises who specialise in providing household items at affordable prices.”

Social change charity Esmee Fairbairn plans to fund Fair For You, a charity set up by a former head of a credit union, to give low-income families credit to buy household goods at an annual interest rate of 42.6%.

It said it would offer loans over one year versus the industry standard of three.

Damon Gibbons from the Centre for Responsible Credit which is advising the start-up, said it needed £8m line on top of Esmée Fairbairn’s seed funding and was in talks with social lending firm Big Society Capital.

“This is crunch time,” said Gibbons. “The model we have developed proves you can offer essential items on credit at a much lower price to people on low incomes.”

A spokesperson for StepChange, the debt advice charity, welcomed the parliamentary inquiry, adding: “Rent-to-own is a form of high-cost borrowing, that people should consider carefully before entering into.

“The parliamentary inquiry will provide a much needed insight into whether the sector is really serving the interests of consumers.”

However a BrightHouse spokesman said customers valued its ability to offer “affordable” weekly payments.

“Our customers choose to shop at BrightHouse because they value our range of top quality products for the home, our affordable weekly payments, and the personal service we offer in nearly 300 communities across the UK,” he said.

Renting-to-buy pushed me further into debt

Alice Matthews from Girvan, told TFN she has been landed with more than £4,000 on purchases of £1,500 from a Brighthouse store in Ayr.

“I thought because it was rented I could give the good back,” she said. “But you can’t – you enter into a purchase agreement and must honour the contract.

"I went to my local Citizens Advice Bureau for help but there’s little they can do.

Alice said she’d been in debt before and had found it difficult to acquire credit. However retailers like Brighthouse have more relaxed lending criteria meaning people already in debt and with poor credit ratings can still take out long term loans against high value goods.

“That’s part of the attraction - people go to them because they can’t get credit elsewhere. So people like me end up deeper in debt.”

 

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