By Huw Jones
LONDON (Reuters) - On the eve of Black Friday, Britain's markets watchdog said it intends to cap the prices people pay for televisions, washing machines and other household goods bought on rent-to-own credit from next April.
Rent-to-own (RTO) firms charge a weekly sum for three years to consumers who typically end up paying several times more than the item's up-front cash price.
High-cost credit, mostly drawn on by the financially vulnerable, has come under intense political scrutiny after a decade of austerity as more people in work have started using foodbanks and borrowing to pay their bills.
The Financial Conduct Authority (FCA) has already capped the interest that payday lenders can charge on loans, a move that shrank the sector and was followed by the collapse of market leader Wonga.
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It said that, under its proposed RTO cap, credit charges could not exceed the cost of the product, and firms "will need to benchmark the cost of products against the prices charged by three other retailers."
Its executive director Christopher Woolard said Black Friday - an annual day of steep discounts on some consumer goods that has become a pre-Christmas revenue generator for retailers - was providing timely examples.
An RTO website on Wednesday evening showed a Black Friday "deal" for a washing machine that would eventually cost the consumer 1,600 pounds.
"If you look for that exact same machine with a range of high street retailers, it's being sold around the 500-pound mark," Woolard said.
Two firms - BrightHouse and PerfectHome - account for over 90 percent of outstanding balances on RTO agreements in a market that has shrunk to less than 400 million pounds ($511 million) from 700 million pounds in 2015, the FCA said.
PerfectHome said it recognised that consumers needed to be protected by fair and appropriate regulation.
The proposed cap, which is being put out to public consultation, would save consumers up to 22.7 million pounds a year, the watchdog said.
The watchdog is also introducing a two-day "cooling off" period from February on extended warranties on items, effectively banning firms from selling them at the point of sale.
It is also talking with a major retailer about an alternative to RTO for people on low incomes, Woolard said.
BUDGET-SMOOTHING
Of RTO customers, only a third are in work. Most are on low incomes and likely to have missed a bill payment in the last six months, Woolard said.
Consumer campaigner Martin Lewis said RTO is the most visceral example of the "poverty premium" in Britain. "We also need to see similar changes to unauthorised overdraft costs, logbook loans and others," Lewis said.
Greg Stevens, chief executive of the Consumer Credit Trade Association, said campaigners who wanted to see firms like BrightHouse go bust were less clear about what happens to consumers who lose access to a "budget-smoothing" mechanism.
BrightHouse, PerfectHome, and Buy As You View, which no longer takes on new business, have paid nearly 16 million pounds in compensation to 340,000 consumers for unaffordable lending and inappropriate charges and fees.
The FCA said it had set the RTO cap to enable the firms to continue to exist, though the two firms were making significant losses and a "firm exit" was a possibility.
Under its wider review, Woolard said the FCA would report on unauthorised overdraft fees before year-end.
($1 = 0.7822 pounds)
(Reporting by Huw Jones; Editing by Silvia Aloisi and John Stonestreet)
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