Citizens Advice calls for better regulation for Rent-to-own loans

Posted by Tom Blandford in Dealing with Debt on 28 September 2016 - Tom is a Credit Analyst at checkmyfile

Citizens Advice has called for tighter regulation for rent-to-own, guarantor and logbook loans after providing advice to over 9,000 consumers who have made use of the lightly regulated financial products and subsequently struggling with debt.

These loans are often used as an alternative to payday loans however they haven’t been subject to the same level of scrutiny as payday lenders often receive from the public.

Rent-to-own lenders offer furniture or other appliances on credit for a larger interest rate than would be available from a loan provided by a mainstream lender. As a result, the typical cost of the goods can far exceed its value if it were to be purchased by other means. Unfortunately, the comparatively light regulation of this area has resulted in many bad debts and prompted many to call for stricter lending practices by these lenders. In particular, Citizens Advice have requested a cap on the cost of borrowing for this form of credit.

In 2015, the cost of payday lenders have been capped at 100% at the value of the original sum borrowed. Since then, the number of consumers struggling with payday loan debts seeking advice from Citizens fell by 53%.

Chief Executive of Citizens advice, Gillian Guy, says that firms are causing misery through their practices and should adopt a similar strategy to ensure that they are not indebting their customers.

“The cap has been effective in reducing the number of debt problems caused by payday loans – so it is worth considering if it should be extended to cover other types of high cost credit,” she says.

“It is important that loans are only offered to people who can afford to repay them. The FCA currently issues guidance to lenders saying they should perform rigorous financial checks on potential borrowers to make sure they can afford to pay back their loans, but the FCA should now consider making this into a compulsory rule for all lenders of high-cost credit.”

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