Rent to own: Citizens Advice’s perspective

Hamse Yusuf, Policy Research Intern, Consumer and Public Services

Since the FCA stepped in to regulate payday loans, an increasing number of people have been turning to rent to own shops and getting into problem debt as a result. Our new research looks into what is causing those problems.

What is rent to own?

Rent to own companies sell household electronic items through expensive hire purchase agreements. The agreements typically require consumers to make weekly instalments, last for three years and have an interest rate of up to 99.9%. Unlike other consumer credit purchases, the product does not belong to the consumer until they have paid off the entire amount, including interest.

Who are the key players in the rent to own market?

The rent to own market in the UK is dominated by three firms; BrightHouse, Perfect Home and Buy as You View. BrightHouse control the large majority of the rent to own market with Perfect Home and Buy as You View having small but significant shares. All three companies have grown in recent years. Brighthouse, for instance, had a turnover of £351.7 million in 2015, an increase of 106% since 2009 (Brighthouse Limited. (2015). Brighthouse Limited – Report and Financial Statements (2014-2015). London: Companies House).

Who uses rent to own shops?

Rent to own shops offer high-cost credit which is typically used by high-risk and low income borrowers. Analysis of the Wealth and Assets Survey shows that people with rent to own debts are significantly more likely to have low incomes, dependent children, and to have disabilities with rent to own becoming an increasingly attractive option for financially vulnerable consumers.

chart

How many people have rent to own debt problems?

As more people use rent to own shops, we have helped more people with rent to own debts. In 2015-2016, Citizens Advice helped people with over 11,500 hire purchase debt problems. This upward trend has continued into 2016/17. In the first quarter of this year, we helped people with 2,871 hire purchase problems, 20% more than in the same period last year.

Looking at the market more generally, large numbers of rent to own consumers get into financial difficulty.

copy-of-infographic-template

What is causing these issues?

There are 4 main factors which lead to people developing issues with their rent to own agreement:

First, rent to own agreements are expensive. Rent to own companies often sell their products at inflated prices and charge customers for expensive, often mandatory add-on services, such as aftercare. That high cost is amplified by the high interest rates with APRs ranging between 68.9% and 99.9%

Second, rent to own companies conduct poor affordability checks. We found that a fifth of rent to own customers spend more than 20% of their income on rent to own agreements.

Third, when customers do get into difficulty, they can be treated badly. A significant number of people who come to Citizens Advice for advice on how to deal with their rent to own debts feel they are being harassed and more than a third of rent to own customers who get into financial difficulties aren’t able to arrange an affordable repayment plan.

Lastly, the agreements themselves are difficult to understand. In particular, the cost and value of add-on services mean it is difficult for consumers to compare prices between rent to own and high-street shops.

What can be done?

To help people avoid taking on unmanageable rent to own debts, our research makes a number of recommendations to government, regulators and rent to own lenders, including:

  • The FCA should extend the total price cap on high-cost short-term credit to the rent to own market.
  • The FCA should investigate how rent-to-own consumers can be encouraged to shop-around when buying add-on services. At the very least, consumers should be given a 14 day cooling off period after purchase in order to shop around for aftercare and insurance.
  • Brighthouse should follow the example of the rest of the market and make their aftercare service optional. Alternatively, the CMA should investigate whether bundling the prices increases overall prices by limiting competition.
  • The FCA’s affordability guidance should be applied as rules to rent to own lenders, as well as high-cost short-term credit lenders.

What do you think of this post?
  • Spot on 
  • About right 
  • Not what I think 

7 comments

  1. jenny Wood

    whilst in principle it is clearly a good idea to restrict the activities of high cost lenders such as these types of companies and pay day lenders, as others have pointed out, just putting a squeeze on access to high cost lending is not resolving the issue for clients on low income or with poor credit history.
    People who use high cost lending are not usually in a position to borrow else where Their income may be too low to make them a good bet for main stream lenders or they may be living on benefits whilst lenders will require an employed person. Alternatively poor credit issues in the past now impact on peoples assumed credit worthiness and so main lenders will not lend to these client groups. Nonetheless these clients still need to be able to borrow money for items like broken cookers or car repairs to enable them to get to work. if access to all forms of high interest credit are restricted their is a risk that desperate clients will turn to unlicensed lenders.
    Many advisers suggest to poor credit clients to borrow money from a credit union however even this is not an option for everyone. our local credit union operates very tight lending criteria and poor credit is a refusal reason even for them. Until the issue of low incomes and access to affordable realistic credit is addressed this will continue to be an on going problem.

  2. Jenny Lee

    If my comment did not get submitted I was essentially saying that recommendations should include more attention to the companies concerned like requiring them to undertake rigorous ability to pay checks and enforcing these so that customers are less likely to experience the problems that you raise.

    And of less concern please spell out acronyms the first time you use them to save us readers from having to look up the details

  3. Jenny Lee

    I agree with the recommendations but I feel that the buy to rent firms are getting off lightly. How about requiring them to make rigorous checks on the customer’s ability to pay with sanctions on those who don’t comply. This might enable cuts to interest rates because companies will not be building in costs associated with those who end up defalting on their – what is essentially a loan.

    Also and less of a concern, please spell out acronyms before using them sop the reader does not have to go searching.

  4. Kayleigh

    I completely agree with what has been said. Brighthouse take advantage of people with a lower income that focus on their money day by day. Their interest rates are very high and they could lower them judging by the amount they turnover each year.

    Obviously there is a market for this, although it does need to change because it does put people into financial hardship – I would not like to be in this situation.

  5. T Scott

    I accept that there is a need for this service but there does not seem to be a lot of competition in this market.
    The problem for many low income people is that they judge affordability not by APR but by what they can afford each week.
    At the very least these firms should be forced to advertise a comparable purchase cost and keep the after care as a clearly separate item that is opted in for. Of course they probably make a significant amount of their income from these deals so unbundling would probably increase costs for the more savvy customers.

  6. Liz Farrell

    I feel the service they provide is required, the option of aftercare being priced into the item I think is a good thing, as I feel most of there customers would not have the time or inclination to source this from somewhere else, and if any damage was done to the item it would put more financial strain of the customer to pay for the item.

  7. Ian Brewerton

    I welcome the attempts to restrict some of the rent to buy providers, especially aftercare insurance.

    However there is a part of the marketplace that these companies offer to CA clients who would otherwise not have access to credit services.

    I am not aware of excessive profits being made, it would be a valuable service lost if these rent to buy companies were not treated fairly, and forced to withdraw from the market.

Post a comment or question