FCA Introduce Rent to Own Price Cap
Policy Statement PS19/6 issued by FCA yesterday introduces a price cap for the Rent to Own (RTO) sector.
RTO firms offer goods such as household appliances and furniture under what is essentially a hire purchase agreement. The key issues in the sector have been the high base cost of goods compared to prices offered by mainstream retailers and high interest rates on the credit. FCA has already introduced new rules on 22nd February to ban the sale of expensive extended warranties at the point a RTO agreement is sold.
The new rules, come into effect on the following dates:
- 1st April 2019 for goods which are new to market (unless the RTO firm is a micro-enterprise)
- 1st July 2019 or the date that the price increased, whichever earlier, for goods which the RTO firm already offers (unless the RTO firm is a micro-enterprise)
- From 1st October 2019 for RTO firms that are micro-enterprises.
[Micro-enterprises are firms with fewer that 10 employees and have a turnover or annual balance sheet that does not exceed €2 million.]
The new rules are as follows:
- The total credit cost cannot exceed 100% of the cost of the goods, including delivery and installation
- RTO firms must benchmark base prices against 3 other retailers, none of which can be a RTO firm and only one of which can be a catalogue credit firm. The maximum base price the RTO firm can charge is the highest of the 3 retailers (if none of them is a catalogue credit firm) or the median price (if one of the firms is a catalogue credit firm). The benchmarking includes delivery and installation costs.
- RTO firms are prohibited from trying to recover the lost revenue from these provisions by raising the price of other goods or services sold alongside the RTO agreement.
- RTO firms must establish written policies and procedures for benchmarking prices which must be approved by their governing body and reviewed periodically.
- Agreements that breach the cost cap will be unenforceable in their entirety.
You can read the FCA policy statement here https://www.fca.org.uk/publication/policy/ps19-06.pdf.