On 22^nd November, the Financial Conduct Authority proposed to introduce a price cap on the rent-to-own (RTO) sector. This will come into force on 1^st April 2019, subject to consultation.  Under the proposed cap, credit charges cannot be more than the cost of the product and RTO firms will also need to benchmark the cost of products against the prices charged by three other retailers.

While the cap has been welcomed by a number of campaigners, we, at the CCTA, are concerned that this is yet another example of regulatory creep affecting the industry, with the potential for extreme consequences.

The FCA is being drawn deeper and deeper into the realm of price controls. It was set up as a competition and conduct regulator, but it is rapidly becoming a price setter.

In June 2018 during a Treasury Select Committee hearing, Andrew Bailey re-iterated the findings of the FCA’s recent HCC review. During the Committee, Bailey resisted calls for blanket rate caps. He also acknowledged the importance of maintaining access to credit for the millions of consumers who cannot access mainstream credit. He was very clear: caps have consequences.

During the hearing, Bailey also rejected demands to reconsider a cap on home credit. On alternative credit options, Bailey acknowledged that outside of Northern Ireland, Credit Unions are underdeveloped in the UK. Importantly, he said that “they are not, on their own, the only solution” and that it would be a “great loss, if we cut off people from credit.

 The decision to cap the rent to own sector is therefore surprising and we expect that this will lead to more calls for more caps on other sectors. Campaigners are clear what needs to happen — price controls to put rent-to-own lenders like BrightHouse out of business. But they are much less clear about what will fill the vacuum.

Credit unions and social lenders are being proposed as solutions. But these are a drop in the ocean compared to the commercial businesses serving millions of customers day in, day out. The campaigners also know that, once a cap goes in, it becomes the FCA’s and the Government’s problem, not theirs. They are not on the hook when the supply dries up.

Of course, the ones who really suffer are the consumers. They lose access and choice. And ironically life becomes more expensive for them because they lose their budget-smoothing mechanisms.

Ultimately, the erosion of lenders will continue and access to consumer credit will be restricted by default. A result that is certainly not in the best interests of the consumer.

Greg Stevens

CCTA CEO