The All Party Parliamentary Group on debt and personal finance has today called on the Financial Conduct Authority to launch an investigation into the so called ‘Rent-to-own’ market, dominated by Brighthouse and Perfecthomes. Not before time.
In September 2013, Church Action on Poverty published the findings of our own investigation into the ‘Rent to Own’ market, which revealed that since the financial crisis in 2007 it has been boom times for the likes of Brighthouse.
The rent-to-own (RTO) sector has more than doubled its pre-tax profits over the last three years,from £9.83 million to £19.7million, by selling basic appliances, furniture, and white goods to hard-up families at inflated prices and sky high interest rates.
In 2013 we highlighted the example of a six-seater sofa from Sofaland which cost £660 – compared with £2,113 for an equivalent item from BrightHouse. Add on BrightHouse’s 64.7% interest, and this sofa ends up costing £4,056 – six times the price of the Sofaland equivalent, and nine times the cost of a similar item on eBay.
More recently, the Centre for Responsible Credit found that the cheapest washing machine available at BrightHouse cost a total of £1,092, from a base “cash” price of £569, while the same machine was £295 from Co-op Electricals.
As the recession forces mainstream retailers to shut down their stores, with electronics giant Dixons alone closing 60 shops, RTO market leaders BrightHouse are increasingly dominating the high street. The number of RTO shops across the country roughly doubled since the recession began, from 179 in 2008 to 344 by autumn 2013.
Yet against this backdrop of enormous profits and expanding markets, the people who are fuelling this boom continue to struggle to pay for the most basic amenities.
Church Action on Poverty’s partners Thrive and the Centre for Responsible Credit both gave evidence to the All Party Parliamentary Group, based on work with dozens of high-cost credit customers, who say they need to be able to access credit – but at a reasonable cost.
Mum-of-five Donna Allison, 28, of Thornaby, is a member of Thrive in Teesside.Taking out doorstep loans and using rent-to-own companies had left her with large debts. But with Thrive’s help, Donna has managed to pay off most of her loans, and is a money mentor.
“Everyone I know has doorstep lenders – family, friends. They also use Buy As You View and PerfectHome. You don’t have the money to save when you’ve got children or you’re on benefits so you go to these places. But then you’re paying a thousand pounds for a second-hand washer. Our fridge freezer is reconditioned. But it will still cost us just under a grand.I had bailiffs coming to the door, and red letters all the time. I was scared to answer the phone. I was getting depressed. They threatened to come and take my goods from me if I didn’t pay. I was frightened. You’d get loan sharks in my neighbourhood coming to your door. You fall into it. They seem to target Christmas time, when they know people struggle. So you’re going to take that money just to give your kids a good Christmas. They keep asking me if I would like another loan. But now I’m strong, and say no.I’ve started looking on second-hand pages on Facebook, and on Freecycle. If I needed something, before I’d be the type to just go out and spend, and not think about where the money is going. Now I feel much better in myself. I’ve got more money to spend on the children. And all the money that I would have given to those loan sharks I’m now saving.”
Low-income customers without access to credit are forced to pay far more for finance, food and fuel. Nationally, this ‘poverty premium’ is equivalent to £4 billion a year.
The intervention of the All Party Parliamentary Group on Personal Finance is to be welcomed. Now it is time for the Financial Conduct Authority to act.