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Rent to Return? The need for consumer protection in the rent-to-own market

26 March 2018

Rent to Return? [ 450 kb]The need for consumer protection in the rent-to-own market

Rent-to-own companies sell household items, such as appliances, furniture and electronics, through ‘hire purchase agreements’. These agreements - usually arranged over three years - involve customers paying off the price of the product as well as interest, in weekly payments.

Citizens Advice helped 5,127 people with rent-to-own debts in 2017. These rent-to-own consumers often show signs of being vulnerable. Our evidence suggests they are often single parents, almost never have a mortgage or own their home, and a large number are out of work due to poor health. Commonly, they hold more than £8,000 of debt.

Rent-to-own services can be useful for consumers - they allow people on low incomes to purchase goods that they cannot afford to pay for upfront. But these goods come at a high cost. Interest rates can be as high as 99.9%, and missed payments are subject to fees of £10-12 per occasion. More generally, rent-to-own goods are a bad deal - with high markups on prices, costly delivery charges, and expensive add ons, such as aftercare and insurance.

To make matters worse, affordability checks often do not identify where clients might face financial difficulties in meeting the cost of these agreements. In particular, they can overlook consumers’ levels of expenditure. As a consequence rent-to-own goods often exacerbate existing financial difficulties:

  • People with rent-to-own debts are highly likely to be behind on important bills, such as energy or council tax.

  • 50% of rent-to-own customers have borrowed to meet payments.

  • Only half of all rent-to-own agreements are completed - leaving customers paying large sums for goods that they often do not get to keep.

We are calling on the FCA to provide more protections for rent-to-own customers by capping the cost of credit:

  • People who purchase rent-to-own products should never pay back more than 100% of the the list price of the product.

  • The cost of late payment fees on rent-to-own goods should be capped. With consumers never paying more than £15 in late payment fees over the course of their agreement.

We estimate that, if existing loans were to be priced down to the cap, consumers could save up to £62 million on 245,000 rent-to-own products.