Hire purchase: Higher prices Problem debt in the rent to own market

Hire purchase: Higher prices  Problem debt in the rent to own market - full report 396 KB

Since the introduction of a price cap on payday lending in January 2015, meaning that people can’t pay back more than twice what they borrowed, there has been a 53% reduction in clients accessing help from Citizens Advice with payday loan issues (Citizens Advice 2016, debt problems with high cost credit products on rise as payday loan issues fall. Retrieved from: https://www.citizensadvice.org.uk/about-us/how-citizens-advice-works/media/press-releases/debt-problems-with-high-cost-credit-products-on-the-rise/). In response to that success, regulators and the government need to be vigilant that those problems don’t simply shift elsewhere.

This report focusses on the rent-to-own market and is the latest in a series of reports looking at the problems consumers have in markets that are similar to payday lending. The rent to own market has grown in recent years, particularly in the wake of the payday loan price cap. That growth has attracted justified attention from the All Party Parliamentary Group on Debt and Finance (APPG), the Financial Inclusion Centre and the Financial Conduct Authority (FCA) (All Party Parliamentary Group on Debt and Finance. (2015). APPG on Debt & Personal Finance – Report from the inquiry into the Rent to Own sector. London: All Party Parliamentary Group on Debt and Finance,  Pages 3-7). The FCA has recently expressed concerns about the clarity of pricing, affordability checks and the treatment of consumers in arrears (Financial Conduct Authority. (2016). Rent to own. London, https://www.fca.org.uk/firms/rent-own). It has appointed ‘skilled persons’ at the three largest rent to own providers to oversee improvements in their practices.

We look in detail at those issues, as well as the reasons why rent to own consumers pay such high prices. The report begins by describing the rent to own market, examining the size of the market and its growth and describing who uses rent to own stores and why. The second section highlights the number of people who struggle with rent to own debts. The third section looks at the reasons so many rent to own consumers take on unmanageable debt.  Finally, it makes ten recommendations to improve the market and provide better protection for consumers.