FCA moves to protect low-income buyers
Sub-prime car finance could be given closer consideration in the forthcoming review into motor sales credit by the Financial Conduct Authority which is said to be considering imposing a cap in the rent-to-own sector to protect the most financially vulnerable.
The FCA is said to be moving towards a cap in the RTO market, limiting both the cost of the product and the charge for credit. It is believed to be proposing that credit charges cannot be more than the cost of the product and RTO firms will have to benchmark the cost of products against the prices charged by three other retailers. It is estimated that the cap will cost the RTO industry £23 million per year.
The FCA said: “RTO customers are some of the most financially vulnerable in our society. Only one third are in work, most are on low incomes (between £12,000 and £18,000) and are likely to have missed a bill payment in the last six months. Despite this, firms often charge these customers more than other retailers for essential household goods such as a washing machine or a cooker, and with add-on insurance and warranties in some cases RTO customers can pay up to four times the average retail price.”
A spokesman for the website, www.verdict.co.uk/motor-finance-online, said: “It is unknown if there will be any transferal of the approach into the motor finance review, which is more likely to look at commissions and information provided at the point of sale, but if there is a focus on low incomes and vulnerability it could be that the regulator might consider sub-prime motor finance more closely in its review.”