Many Britons are being forced to take out highly expensive warranties and insurance for basic items
Throughout the early and middle twentieth century in the United States, very few low income people had any interaction with a bank at all. In fact, all but for the very wealthy Americans were unbanked, and so relied heavily on instalment credit if they wanted any part of the consumer world that their government spoke so highly of.
It would be pretty typical to walk into a store, pick out a basic household item, put down a deposit for it and spend the next few years paying it off, at which time the item had probably broken and the total cost over time was far and above the face-value price of the item elsewhere.
But surely we live in more enlightened times? Not so. Today a group of members of Parliament from the All Party Parliamentary Group on Debt and Personal Finance are demanding action be taken on so-called Rent to Own firms, such as Brighthouse and Buy as you View.
In addition to the high cost, for very basic items many Britons are being forced to take out highly expensive warranties and insurance, and the practice, while well known among regulators, has been allowed to continue.
The real problem is in how prices are displayed by firms. An item bought from Brighthouse for example could be purchased with an APR of 29.9 per cent, which is a rate many would refuse, but has become acceptable among some firms.
A gas cooker for example at £386.86, or £3.57 a week for 156 weeks, would eventually total £556.92.
A couple of years ago a campaign in The Sun, of all places, targeted Brighthouse, who were asked what they felt about some of their goods being cheaper at Harrods, to which one representative replied that they didn’t mind really because they didn’t consider Harrods a competitor – and in any case ‘the fact that [Harrods] was more than 10 miles away [from the Brighthouse in question] meant its pledge to beat rivals on price didn’t apply’.
It’s hard to see it any other way – the company profits from poverty. Around 350,000 households shop in Rent-to-Own shops, and Brighthouse is the biggest with more than 270 stores around the country. When it was taken over in 2007 by Vision Capital, a private equity group, it was one of its most profitable acquisitions, with revenues of £229m. Last year the company made £52m in profit on £333m turnover, and a public listing could value at between £500m and £750m.
Some may believe that a rise in Rent to Own custom may come at the expense of payday lenders, who have recently been targeted with new rules over lending practices. But to do so neglects to contextualise poverty in Britain today.
As Stewart Lansley and Joanna Mack point out in their book Breadine Britain, out next week, Britain is going backwards in tackling poverty. Between 2004 and 2013 the incomes of those in the bottom quarter fell by around nine per cent, and overall they were no higher than in 2000. All the while prices have been rising (food prices have risen 50 per cent) and the proportion of income that those on low incomes spend on basics has risen.
So what do we need? MPs like Yvonne Fovargue, Tracey Crouch, and Paul Blomfield in the Debt APPG are absolutely right in saying we need the introduction of warnings on products in Rent to Own stores, to highlight what a risk they are, particularly as the prices spiral quite quickly beyond affordability.
They also call for bans on expensive warranty products and an investigation from the Financial Conduct Authority into insurance misselling.
But we also need alternatives. It used to be that community support schemes would hand out vouchers for white goods (beds, bedding, other household essentials), but good schemes like these are hard to come by with limited resources from local councils.
That’s why organisations like Fair for You, which is an alternative to Rent to Own, set up by former Credit Union CEO Angela Clements, is vital. Unlike Brighthouse their business model is not set on profiting from the low waged.
Also, looking again at the US, many states have additional regulations such as cooling off periods, where those who need to prioritise other debts so as not to fall into complete despair are given the option of taking time out of their debt repayments to firms.
Price controls, too, have been used to stop someone paying more than double the face-value cost of an item. While double would still be too high, it would be worth the city regulator looking into whether price caps is a viable option in Rent to Own.
Better regulation has not always been the forte of this government. But what one person might call too much regulation or paternalism, anyone half decent would call the natural response to over indebtedness at the hands of unruly businesses.
Carl Packman is a contributing editor to Left Foot Forward and the author of Loansharks: The rise and rise of payday lending
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