My Lords, this House has done much important work in tackling high cost and exploitative credit, thanks largely to the most reverend Primate the Archbishop of Canterbury and my noble friends Lord Mitchell, Lord Stevenson and Lord Kennedy of Southwark.
Amendment 105L concerns a new, unregulated and somewhat exploitative form of loan that has sprung up in the high street—along with other high-cost credit, mostly in low-income or deprived areas. It is known as rent to own: one well known example being BrightHouse. It works by having consumers rent products, which can be from household essentials, such as washing machines and beds, to games consoles, with the rent being eventually used to pay for the product. However, because it is deemed to be rent, there are none of the safeguards that would cover a loan to buy the product—for example, hire purchase or a straight bank loan. There are no checks on the ability to repay. There are no rights over the property. There are no safeguards against the property being repossessed because, until the final payment is made, it is only being rented, not owned by the people in the house. So, although the consumer is theoretically renting the product—in their minds, they are of course in the process of buying it—any failure to meet a payment can lead to it being immediately repossessed. There is evidence that such stores show little forbearance over mispayment and are unwilling to accept a breathing space or to negotiate payments where personal circumstances change. That is despite the fact that the consumer may have already paid well over the true value of the goods—sometimes, several times over.
There also appears to be a degree of heavy-handedness when it comes to repossession, with customers rarely informed of their rights and, in some cases, intimidated. There is no protection for the consumer, who is legally neither the owner of the product nor a borrower of a
loan, so none of the normal protections associated with hire purchase apply. Protections apart, let us look at the prices. They far exceed the normal purchase price, even including any interest from a bank, which, if one were buying it with a bank loan, would then be added on to the price. The products include a washing machine. If you bought a washing machine from BrightHouse, a not unrepresentative example would leave you paying £1,404 for the machine, which could be bought somewhere else for £535.70—by monthly instalments in both cases, so I am comparing like with like. That means you are paying almost three times the price. However, if you get the games console rather than the washing machine, you end up paying more than three times the initial price. Buying an Xbox console bundle—I admit that I do not know what that is but I am assured that people buy them—elsewhere would cost you about £400. At BrightHouse it is £1,500 over a 130-week period. The APRs are between 60% and 90%. These are not my calculations; they are from BrightHouse’s own catalogue, where buying an HP Platinum Pavilion touch screen laptop would cost you £1,560, paying an APR of 94.7%. So adding up these so-called rents amounts to far more than the full list price, even adding on the interest if you bought it with a bank loan.
Furthermore, the company—I mention this one because it is the only one that I have found time to go and visit—often stocks absolutely top-of-the-range products, despite its shops being in deprived areas and its business model being aimed at those who want to pay weekly. On top of that, BrightHouse adds in compulsory and expensive insurance, even though the goods still belong to the company as they are being rented, so insurance is probably not needed. Then, just to add insult to injury, the marketing of the goods uses every trick of behavioural economics to tempt in the buyer, highlighting the price per week rather than the total cost or the length of repayment. The laptop that I just mentioned costs £15 per week but the catalogue does not tell you how many weeks you will need to pay off the price of £1,560. As we discussed in Committee last week, this is “drip pricing”, where the first number you see—in this case, the weekly amount—gives little indication of the full price. We know from research that consumers tend to overvalue a benefit that they will receive now, which in this case is a small weekly payment and immediate possession, while underestimating the impact of deferred costs.
Amendment 105L would require such a company to include information about the price of the good; an indication of the price the customer might pay elsewhere; the cost of the credit agreement, which should be in money terms, not percentage terms; and clarity about possible repossession, including any allowance for a breathing space or renegotiation of payment. It would ban making insurance compulsory, as I am sure the insurance itself adds more in cost than it does in value, and you have to pay the interest on it because it is part of the weekly charge. The amendment would also require the lender to check on the consumer’s ability to pay the full price.
This is not an attack on any weekly payments system, which can help those on lower incomes with their household budgeting. However, the business model
used by companies like BrightHouse is so stacked against the customer that it is little short of exploitation. I therefore hope that the Government will accept this measured approach, which does not ban this form of credit but introduces greater transparency alongside adequate safeguards. I beg to move.