On 22 November 2018, the FCA published Consultation Paper 18/35: Rent-to-own (RTO) and alternatives to high-cost credit – feedback on CP18/12 and consultation on a price cap (CP18/35).

Our earlier blog on Consultation Paper 18/12: High-cost Credit Review: Consultation on rent-to-own, home-collected credit, catalogue credit and store cards, and alternatives to high-cost credit, discussion on rent-to-own pricing (CP18/12) can be found here

In chapter 4 of CP18/35 the FCA sets out proposals for a price cap on rent-to-own (RTO) products. The FCA’s proposals are designed to control prices by:

  • setting a total credit cap of 100%;
  • introducing a requirement on firms to benchmark base prices (prices before any added products like warranties etc) against retail prices; and
  • preventing firms increasing their prices for insurance premiums (e.g. theft and accidental damage cover) or arrears charges in order to recoup lost revenue from the price cap.

The deadline for responding to the FCA’s price cap proposals is 17 January 2018. If introduced, the price cap will affect consumers considering purchasing household goods using an RTO from 1 April 2019.

In CP18/35 the FCA also reports that having consulted in CP18/12, it is now making the following final rules on the sale of extended warranties:

  • point of sale ban on the sale of extended warranties alongside the sale of the RTO agreement (‘the point-of-sale ban’). Firms will be required to allow two clear days before consumers can actively opt-in to buy these; and
  • new requirements on firms to provide information to consumers to help them decide whether to buy the extended warranty. This information will include the price in terms of weekly, annual and length of contract cost, as well as how the extended warranty relates to the manufacturer’s warranty and any theft and accidental damage insurance.

These final rules are further discussed in chapter 5 of CP18/35 and are set out in Appendix 2. They come into force on 22 February 2019.