Alison Johnstone: Time to make credit affordable
It's a nightmare when your washing machine breaks down. In a busy family, school uniforms need washing and mountains of laundry soon pile up.
For those on higher incomes, this means an inconvenient trip to the shops or hours spent comparing deals online, trying to minimise another unwelcome spend just before Christmas.
But for families on low incomes, who can’t afford to pay for essential white goods up front, this can turn into a financial disaster.
So-called ‘Rent to Own’ companies like BrightHouse not only charge high prices for household goods – sometimes up to three times more than other retailers – but charge incredibly high interest rates: typically around 69% APR. Some even added compulsory insurance cover, adding hundreds of pounds to the cost of goods over years.
Last year, the Financial Inclusion Centre found BrightHouse had charged more than £1000 over three years for its cheapest washing machine. The upfront cost of an equivalent washing machine elsewhere on the high street was just £250. In fact, BrightHouse have advertised washing machines at a staggering total cost of £2342. Buying the same machine upfront elsewhere would have cost less than £450.
This poverty premium means struggling families pay the most for essentials. High cost credit takes advantage of people’s low-incomes and desperate need to keep everything on track: to wash uniforms for school, clothes for work, and get hot meals on the table.
As usual, it’s typically women who are left juggling these debts, just to keep their children in clean clothes, managing the little cash they have available to make costly weekly repayments.
Lone parent families make up a disproportionate share of ‘rent to own’ customers, and their typical customer is a woman in her thirties, living in private rented accommodation and bringing up a family on a low income.
Recently, the Financial Conduct Authority judged that BrightHouse had not been acting as a responsible lender.
It failed to make proper assessments of customers’ financial circumstances in 114,000 cases, and even kept initial payments from customers who had their agreements cancelled before their household goods were delivered. BrightHouse is now required to pay more than £14.8 million to customers who were treated unfairly.
That’s a start. But no company should sign customers up for exploitative deals like these in the first place. Go to BrightHouse’s website today, and you’ll still see interest rates of up to an incredible 99.9% APR.
Many people were really shocked when the Paradise Papers showed the Queen’s private estate had offshore investments and a stake in BrightHouse. This can’t be seen as an ethical investment.
Scotland has new devolved powers over consumer advocacy and advice. We should make the most of them by ensuring all customers are treated fairly and protected from exploitative agreements
Making affordable credit available and supporting not-for profit alternative providers like Fair-For-You is part of this.
But we simply can’t allow big ‘rent to own’ companies to profit from the poorest. So I’ll be campaigning for fairer prices for family essentials.
Alison Johnstone is Green MSP for the Lothian region.