CITIZENS Advice is calling for new rules to be introduced to try and better protect consumers who take on rent-to-own loans.
New research carried out by the charity shows high-interest rates, late payment fees and expensive add-ons are leaving rent-to-own consumers struggling to pay for goods that they can end up being forced to return. About 400,000 people in the UK are estimated to have rent-to-own debt in the UK.
Loans can have annual percentage rates (APRs) as high as 99.9% over the course of three years, as well as punitive late payment fees that add to the original cost.
In evidence produced earlier this year by rent-to-own company, Brighthouse, to an investigation into household finances being carried out by the Treasury Committee of the House of Commons it was revealed that about half of its rent-to-own agreements do not get to the point of ownership.
Last year Citizens Advice helped more than 5,000 people with problems relating to their rent-to-own loans. On average they had rent-to-own debt of nearly £1,000 and their average overall debt was more than £8,000. The vast majority of those seeking help were women and 63% of them had dependent children.
Citizens Advice is concerned that for rent-to-own consumers a combination of low incomes and high interest rates is trapping them with problem debt and it wants to see tougher regulation of this market so that in no circumstances can people ever pay back more than double the list price and that late payment fees cannot total more than £15 during the course of the agreement.
Gillian Guy, Chief Executive of Citizens Advice, said that the latest research together with a recent comment from the Financial Conduct Authority (FCA) had made it clear that there are significant problems in the sector that need to be addressed.
She added: “The FCA needs to put in place measures to protect people from expensive borrowing and spiralling debts. What can appear to be a lifeline shouldn’t become a tripwire.
“The evidence is clear – the cap on the payday lending market secured a much better deal for consumers. The FCA should use its upcoming high-cost credit review to build on the success of the payday loan cap and extend the same protections to rent-to-own customers.”
Citizens Advice is also concerned that affordability checks are not always identifying where clients may struggle to meet the cost of their rent-to-own agreements. Currently, while all lenders have to conduct these checks, there are no rules on what they have to include.
The charity has found that people with rent-to-own debts are more likely to be behind on other important payments, such as energy or council tax bills, and around half of the consumers who have rent-to-own agreements have had to borrow to meet the payments.
Citizens Advice is continuing to make it easier for people to visit its advice sessions in Lyme Regis. On a trial basis it has been holding sessions since February at the Lyme Regis Medical Centre in Uplyme Road, DT7 3LS and two more are due to take place before the end of this month. They will take place between 10am and 12noon on Monday, April 23 and Monday, April 30.
These session are in addition to the regular weekly advice days that are held every Wednesday from 10am to 3pm at the St Michael’s Business Centre, DT7 3DB, in the town.
Anyone is welcome to visit Citizens Advice, even if they do not have an appointment, and the advice they will be able to obtain is free, confidential and impartial.