My Lords, the Government share the noble Baroness’s concerns about the risk of consumer detriment in the hire-purchase credit market, particularly to the vulnerable consumers that she has described to the House. I wrote to the noble Baroness on this subject recently and want to take this opportunity to underline that this does include rent to own and we are talking about the same issue.
We have stated before in Committee that consumer credit regulation transferred to the Financial Conduct Authority on 1 April this year. The rules for the consumer credit market, put in place by the FCA, were made with the stated aim of: ensuring that firms lend only to borrowers who can afford it; increasing borrowers’ awareness of the costs and risks of borrowing unaffordably; and ensuring that consumers have access to support if they have financial difficulties.
Accordingly, the FCA rules for hire purchase and conditional sale agreements, including rent-to-own agreements, specifically require firms to provide pre-contractual explanations and information to a consumer before a contract is made. These rules are in line with European requirements, including setting out the total amount payable, the cash price of an item and the total cash price if there is more than one.
Firms must also adhere to debt collection rules, including treating customers in default or arrears difficulties with forbearance and due consideration; and assess creditworthiness and affordability, including the potential to impact adversely on the consumer’s financial situation, and the consumer’s ability to make repayments as they fall due. Where firms sell insurance products, they must do so in line with the FCA’s requirements around assessing consumers’ eligibility
to claim on a product, and the high-level principle of “treating customers fairly”. Firms must also give a separate price for the insurance product and explain whether it is compulsory.
These rules are in force now, and the FCA can enforce breaches of its rules— there is no limit on the fines it can levy and, crucially, it can force firms to provide redress to consumers. The FCA keeps all its rules under review and continually considers whether further interventions are needed in the consumer credit market. It will set out further thinking early in the new year.
Regarding the noble Baroness’s specific points about contract enforceability, lenders are already required to serve a statutory notice under the Consumer Credit Act before enforcing the agreement or repossessing goods. Goods cannot be repossessed without a court order if the consumer has paid at least a third of the total amount payable. The FCA also sets out how firms must undertake affordability assessments before entering into an agreement, including taking reasonable steps to assess the customer’s ability to meet repayments in a sustainable manner, without undue difficulties.
To underline that point, the FCA has had full use of these powers since 1 April and can make use its broad enforcement toolkit to punish breaches of its rules. The FCA also has flexible rule-making powers to take further action where it deems it necessary in the protection of consumers. The Government believe that this, alongside the existing protections set out in legislation, provides robust protections for consumers in the conditional sale and hire purchase markets. I therefore ask the noble Baroness to withdraw her amendment.