Charities have welcomed plans to curb prices charged by rent-to-own companies, but want to see banks face overdraft fee limits
Moves to clamp down on rent-to-own shops charging high prices have been praised by campaigners – however restrictions must be extended to money lenders.
The Financial Conduct Authority (FCA) has completed a near two-year long investigation into high interest borrowing in Britain.
And the regulator has now unveiled plans to limit the amounts that rent-to-own, doorstep lending and catalogue shopping companies can charge. The review found that customers ended up paying more than £1,500 for cookers from rent-to-own companies that sell in other high street shops for less than £300.
The price cap, estimated to benefit about 400,000 people, is likely to come into force in the spring. A spokesman for FCA said: "The FCA believes the harm identified in this market is sufficient in principle to consider a cap on rent-to-own prices. It will now carry out the detailed assessment of the impact that a cap could have on the rent-on-own sector and how it might be structured."
The regulator has also called for banks to give people more alerts of potential overdraft fees, and overdrafts will now no longer appear as "available funds" when customers use cash machines.
However the FCA has stopped short of setting limits on overdraft fees, despite pleas from charities that they fuel the cycle of debt for millions of Britons.
“We have long argued for action on high cost credit,” said Phil Andrew, chief executive of the StepChange Debt Charity.
“Its regular use to meet essential costs by those already struggling can lead to debt spiralling out of control. Our recent research shows the number of people who used high cost credit for essential household costs rose to 1.4 million last year, so we welcome the focus the FCA is placing on protecting consumers in this market.
“We also welcome the transparency measures on overdrafts as we found that over two million people in the UK are stuck in a constant cycle of persistent overdraft debt. However, we're looking forward to the FCA abolishing unarranged overdraft fees and introducing substantive steps to identify and support people in or at risk of persistent overdraft debt through the banking review.”
Gillian Guy, chief executive of Citizens Advice, also called for further action to help those stuck in debt.
"The FCA's willingness to cap rent-to-own credit is good news for the thousands of people who rely on it to cover essential item,” she said.
"It shows they're prepared to be decisive, but that makes it even more disappointing that they haven't extended these measures to the doorstep lending market, which 1.6 million people use to help make ends meet.
"The FCA should reconsider their decision not to consult on a cap in this market. If they fail to act to protect these consumers, the ball will be firmly in the government's court. It must show it is genuine in its commitment to making markets work for everyone, and put pressure on the regulator or legislate to give people the protection they need."
