Rent-to-own (RTO) products let people take home household goods, such as a washing machine or a fridge, and pay for them over time. In the FCA’s rules, an RTO agreement is a regulated hire-purchase or conditional sale agreement supplying household goods. Since April 2019 the FCA has capped how much RTO firms can charge, in chapter 5B of its Consumer Credit sourcebook. The rules apply UK-wide to FCA-authorised RTO firms.
What counts as rent-to-own
CONC 5B.7.1R defines an RTO agreement as a regulated credit agreement that is a hire-purchase or conditional sale agreement supplying one or more items of household goods, excluding goods acquired mainly for business. Household goods include furniture, kitchen appliances such as cookers, washing machines and fridges, and electronic goods such as televisions, games consoles, computers and phones. The cap applies to firms that enter into such agreements in relation to more than one category of household goods.
The total cost of credit cap
Under CONC 5B.2.11R an RTO firm must not enter into an agreement providing for charges that, alone or in combination with other charges under it or a connected agreement, exceed or are capable of exceeding the cash price of the goods plus, where relevant, the cash prices of delivery, installation and goods or services supplied under a connected agreement. The FCA’s worked example (CONC 5B.2.12G) has a washing machine at £200, a dryer at £250, delivery at £30 and installation at £20: the sum of the cash prices is £500, so the charges on top must not exceed £500. In effect the total repayable cannot go above twice the sum of the cash prices, so the cap limits the cost of credit rather than making rent-to-own cheap.
Benchmarking the cash price
The cap also restricts the cash price used as its starting point. For new goods an RTO firm must not enter into an agreement where the cash price exceeds a benchmarked price (CONC 5B.2.1R). The firm must find three benchmarking cash prices at which the goods are currently available to UK consumers, not from another RTO firm or its associate, and the benchmarked price is generally the highest of the three, or the median where one comes from a retail revolving credit business (CONC 5B.2.2R). For delivery or installation the benchmark is the median of three other retailers’ prices (CONC 5B.2.8R), and benchmarks must be refreshed when prices rise and at least every 12 months.
What happens if the cap is breached
CONC 5B.6.1R says that where a firm breaches the total cost of credit cap, the obligation to pay charges that in total would exceed the cap is unenforceable in its entirety, and the borrower is entitled to recover any charges paid. If you ask, orally or in writing, the firm must repay charges as soon as reasonably practicable and in any case within 7 days of the request. Under the FCA’s example, if an agreement provided for £600 of charges against £500 of cash prices, the obligation to pay the whole £600 would be unenforceable.
Anti-avoidance rules, and what the FCA found
CONC 5B.3.1R prohibits firms from recouping revenue lost to the cap through the price of other goods or services connected with the agreement; guidance says that includes raising the price of theft or accidental damage insurance or extended warranties. In December 2020 the FCA published an evaluation of the cap. It reported that prices charged by the two largest firms then in the market fell by an average 19 per cent, that the highest financing price for the longest term (plus delivery and installation) fell from 3.6 times the average retail price before the cap to a highest observed ratio of 2.3, and that it found no evidence firms had raised other prices to compensate. That evaluation is specific to rent-to-own and does not show whether other forms of credit are cheaper.
FAQs
Does the cap make rent-to-own the same price as buying outright?
No. The rule allows charges up to the total of the cash prices, so the total repayable can be well above the price of buying the goods for cash.
Does the cap apply to second-hand goods?
The benchmarking rule in CONC 5B.2.1R applies to goods which are not second-hand, while the total cost of credit cap applies to charges under an RTO agreement for goods more generally. Check the agreement and ask the firm which rules it applies.
Where can I check my agreement is compliant?
Ask the firm for the cash prices used and check the firm is authorised on the FCA Firm Checker, then take free advice if the total charges look higher than the cash prices allow.
Bottom line
The FCA’s rent-to-own cap stops charges exceeding the cash price of the goods, delivery and installation, requires cash prices to be benchmarked against other UK retailers and makes excess charges unenforceable and refundable within 7 days of a request. Before signing any agreement, compare the total repayable with the cash price and with your other options. This is general information, not financial advice.