Following on from my article last week in relation to the interaction between mental health and financial difficulties/debt the Citizens Advice Bureau have highlighted a specific problem in this area.
- Rent-to-own companies are often used by people who cannot afford or get ‘normal’ credit.
- Customers take out a contract to buy a product and then pay weekly instalments until it is owned. It is similar to a hire purchase agreement.
- Customers typically pay much more than the actual cost of the product due to very high rates of interest and extra mandatory costs such as a warranty, delivery and installation.
- Over 400,000 households use the sector, this has doubled since 2008. The two biggest firms in the sector are BrightHouse and Perfect Home.
- A disproportionality large number of their customers are people with learning difficulties and/or mental health problems.
The concept, championed by perhaps the biggest company in this area BrightHouse is that the debtor pays for a household item in instalments, with high interest rates, until that item is owned.
The Citizens Advice Bureau is concerned that vulnerable people are being pushed into further debt and financial difficulties.
The former labour leader Ed Miliband said on BBC Radio (in response to the findings)
“It seems to me that too often rent-to-own companies are taking advantage of people who feel that they have nowhere else to go. The regulator needs to stop the most vulnerable people in our society, like those with learning difficulties, being taken advantage of.”
The report highlights the difficulty people with mental health problems face and how this is compounded by the fact agreements are taken out for more than one item. Often people take out multiple agreements for furniture and electrical goods using welfare benefit payments to pay for them. This obviously impacts on their ability to pay for other essentials such as utility bills and food.
There are also technical questions as to whether some people with mental health problems understand fully the agreements that they’re entering into.
The Citizens Advice Bureau say that they receive thousands of complaints every year about the industry and has evidence which suggests affordability checks are not always carried out by the firms as they should be.
The Financial Conduct Authority have regulated the sector since 2014 and states that if a company has reason to believe a customer has a learning difficulty or mental health problems they must take steps to help them in making an informed decision and decide whether it is appropriate to lend.
The Citizens Advice Bureau says that this does not go far enough. They would like companies in the sector to be regulated in a similar way to payday loan companies and to see a cap on the total amount that can be charged for a product.
This would stop a situation where customers can sometimes end up paying three times the value of the item. Costs can also spiral when customers have late payments or miss a payment and when extra costs such as delivery, installation, warranty and of course interest rates are taken into consideration.
The other side of the argument is put by Kate Andrews from the Institute of Economic Affairs who believes that rent-to-own companies provide a valuable service. “It is an injustice to tell people that because they’re poor they can’t have things that in 2016 we would consider necessities”.
She believes that the rent-to-own firms charge very high interest rates because they’re taking on a lot of risk, commonly giving credit to people with no credit score or a very poor credit rating.
BrightHouse stated the following in reply to Mr Miliband’s comments:
“Mr Miliband consistently misrepresents our business. BrightHouse serves those lower income families who are excluded from mainstream credit. Rent-to-own is a very different proposition to other forms of retail. We undertake extensive affordability assessments before lending and seek to support all those customers who find themselves in difficulty.”
If you’re struggling with debt please don’t hesitate to contact a member of our dedicated team on 0845 287 0939. Alternatively please complete the online enquiry form.