The Financial Conduct Authority (FCA) is forcing the firm to either pay customers loans back in cash or write off loans after the regulator identified poor affordability assessments and collections practices.
Rent-to-own retailers sell household items, such as washing machines and televisions, in-store and online. Consumers pay on a weekly or monthly basis and can choose to have ownership of the goods transferred to them when all the payments have been made.
Other issues included customers being charged late fees for arrears on insurance contracts, paying for insurance before receiving any goods and failures to refund first payments taken before the goods were delivered.
Subsequently, PerfectHome, a trading name for Temple Finance, has conducted a major programme of improvements to ensure that loans are affordable and customers are treated fairly throughout the collections process, said the regulator.
PerfectHome has identified the customers that may have been treated unfairly in the past and has committed to pay redress to these customers.
There will be four tranches of redress. Around 4,000 customers did not receive adequate affordability assessments and these customers will share £1.7m, or an average of £425 each.
The remaining redress will be allocated to those incorrectly charged late fees; for insurance payments made prior to the delivery of goods; and initial payments made against sales that were subsequently cancelled.
Around 2,425 customers whose loans were unaffordable, which led to them defaulting, will have their debts written off by the firm. They will also become the owners of the goods for which they originally took out the loan.
Unaffordable lending unacceptable
Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA said: “Our key priority is to ensure all financial firms lend responsibly and treat consumers fairly; especially those in financial difficulties or who are vulnerable.
“Unaffordable lending is not acceptable in any circumstances. I am pleased that the firm has taken steps to address this and provide redress to those customers affected. PerfectHome has recently been authorised by the FCA following substantial improvements to its business practices.
“This package of redress continues the FCA’s work with the rent-to-own sector to resolve the concerns we have previously identified.”
Gillian Guy, chief executive of Citizens Advice said:
“While today’s announcement is good news for the 37,000 people affected, we need to recognise that there are still fundamental problems in the rent-to-own sector.
“This is the third time that the FCA has had to intervene in this market. The regulator must now put in place measures to protect people from expensive borrowing and spiralling debts.
“The FCA should use its upcoming high-cost credit review to build on the success of the payday loan cap and extend the same protections to rent-to-own customers”.
PerfectHome will contact all affected customers to explain the refund or balance adjustment they will receive. Customers do not need to take any action until they are contacted.
The FCA authorised PerfectHome to carry out, among others, hire purchase agreements on the 14 December 2017.