A price cap on the rent-to-own sector which could save consumers up to £22.7 million per year has been proposed by the City regulator.
The Financial Conduct Authority (FCA) said in some cases rent-to-own customers can pay up to four times the average retail price for products.
The cap, subject to consultation, will come into force on April 1 2019, providing protection for some of the most financially vulnerable people in the UK, the FCA said.
It said that, to protect consumers, it has designed a bespoke price cap to fit this particular market, limiting both the cost of the product and the charge for credit.
Under the proposed cap, credit charges cannot be more than the cost of the product.
In addition, rent-to-own firms will need to benchmark the cost of products against the prices charged by three other retailers.
The FCA is also introducing a two-day cooling off period for the sale of extended warranties.
This will effectively ban firms from selling these warranties at the point of purchase. This will come into force on February 22 2019.
The FCA said rent-to-own customers are some of the most financially vulnerable in society.
Only one third are in work, most are on low incomes of between £12,000 and £18,000, and they 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 rent-to-own customers can pay up to four times the average retail price, the FCA said.
FCA chief executive Andrew Bailey said: “Today’s measures are designed to bring down very high prices in the rent-to-own sector, which is used by some of the most financially vulnerable in our society.
“A cap will prevent firms charging over the odds for essential everyday items like cookers or washing machines.
“We believe a cap is the only intervention that will effectively tackle the highest prices. If implemented it will save consumers up to £22.7 million a year from excessive charges.
“We want to stop consumers having to pay many multiples more than the price of a product on the high street. These changes build on the measures we have already taken across the high-cost credit sector.”
The FCA has been looking into the high-cost credit sector generally – as well as potential alternatives to high-cost loans.
It said it is working closely with the Government and other relevant organisations to support a number of initiatives.
The FCA previously imposed a cap on the cost of payday loans following an outcry from charities over people becoming trapped in debt spirals.
The consultation on the price cap and benchmarking proposals will be open until January 17 2019.