FCA Crackdown on rent-to-own, doorstep lending and catalogue shopping
The rent-to-own sector faces a price cap similar to limits on payday loans, but the financial regulator will not rush to impose the same restrictions on overdrafts.
The Financial Conduct Authority (FCA) has spent nearly two years studying borrowing at high interest rates.
It has now outlined a package of plans for rent-to-own, doorstep lending and catalogue shopping.
High-cost credit is used by three million people in the UK. Single-parents aged 18 to 34 are three times more likely to have a high-cost loan - such as a payday loan, doorstep loan or pawnbroking loan - than the national average.
"The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer," said FCA chief executive Andrew Bailey.
Campaigners had called for a cap on the interest and charges faced by those using high-cost credit, including overdrafts.
They said that cap on the cost of payday loans, introduced in 2015, should be a template for the rest of the high-cost credit market.
About 400,000 people have outstanding debt with rent-to-own firms from which they buy household appliances, paying the money back over three years.
After interest, they can end up paying well over double the cost price.
The FCA said it had seen cases when people had paid more than £1,500 for essentials like an electric cooker that could be bought on the high street for less than £300.
"The FCA believes the harm identified in this market is sufficient in principle to consider a cap on rent-to-own prices. It will now carry out the detailed assessment of the impact that a cap could have on the rent-on-own sector and how it might be structured," the regulator said.
Such a cap would not be in place before April 2019.
John Glen, Economic Secretary to the Treasury, said the measures would help the most vulnerable avoid being stung by "dodgy deals".
That includes people like Kenneth Murray, who says he had to buy a laptop from a rent-to-own firm business as he could not get credit from a high street electrical store.
"I had multiple debts that I was trying to juggle, and no stable source of income. I ended up taking out loans to pay loans," he said, although he has now managed to halt this cycle.
Number of UK workers turning to high-cost short term loans continues to rise
The number of UK workers turning to high-cost short term loans (payday loans) as they struggle to cover their living costs and make ends meet continues to rise. Using data collected from over 700,000 payday loans requested between January 2017 and December 2018, credit broker CashLady has gathered together an in-depth analysis of the average borrower.