The children’s charity Barnardo’s have warned that low income families are being exploited by ‘rent to own’ suppliers of household appliances.
They are calling on the Office of Fair Trading (OFT) to take action on these types of agreements that can end up increasing the cost of such items by up to 150%. They cited an example where a Beko fridge freezer would cost £430 on the high street, however, if bought through a BrightHouse three year rent to own scheme, the total cost would rise to £1,074.
BrightHouse argued that their scheme allows consumers to buy products that they would otherwise be unable to. They said that they were a responsible lender.
Barnardo’s are arguing for lenders to make their interest rates clear and be forced to display the equivalent high street product price.
‘Rent to own’ schemes work by lending an item to a customer, who then makes regular payments. The items are paid off over an agreed length of time, with added interest. Such schemes are often used by people who cannot afford to buy large furniture and electrical items, but the interest rates can significantly add to the total cost of the item.
Barnardo’s also pointed out that approximately 20% of poor households who do borrow money face repayments that cost them 30% of their weekly income. Furthermore, figures from the Business Department indicate that when households with under £13,000 annual income take on debt, 40% of them end up owing 60% of their income.
Another survey has suggested that 3.5 million people will take out high interest pay day loans over the next six months.
A spokesperson for Barnardo’s labelled the practice as an ‘unaffordable debt trap’ in which vulnerable families are being drawn in and pushed further into poverty by a morally bankrupt lending industry.
Barnardo’s want the OFT to provide protection for these vulnerable families and want them to force lenders to make clear their ‘extortionate rates.’ They also want the financial services industry and the government to take action to help regulate and increase the transparency of the industry.
Speaking on the radio, Anne Marie Carrie from Barnardo’s, said: “They need to look at how people on low incomes can get access to mainstream financial services that are fit for purpose so you can get a bank account that has a direct debit facility, so that you’re not paying this poverty premium. They’re paying it for gas, for electricity and now they’re paying it for other basic items like cookers and washing machines.”
In June 2010, the OFT looked into the high cost credit market. They did make a number of recommendations to the government, but suggested that these recommendations would only have a limited effect.
The OFT indicated that to get real change in the high cost credit industry, steps such as expanding the availability of credit were needed. However, they added that this was beyond their remit.