Vicky McCourt from Smarterbuys Stores

Ethical lender welcomes FCA’s rent-to-own shake up and vows to keep rates down

North East-based credit provider Smarterbuys Stores, which helps 4000 low income households access affordable loans for vital household goods, has welcomed the rent-to-own sector shake up being put in place this month by the Financial Conduct Authority (FCA).

The FCA previously ordered retailers like BrightHouse, Buy As You View, and Perfect Home to repay almost £20m to over 250,000 customers, following a ruling that they had not been lending responsibly, and forcing a reduction in total pricing from April 1, 2019.

Smarterbuys Stores believes the introduction of a price cap on interest rates could save consumers around £22.7m a year in excessive charges.

Originally aimed at working alongside UK social housing landlords to give their tenants access to cheaper credit for white goods, TVs and furniture, in 2018 the business announced that it was expanding its offering to market directly to all consumers on lower incomes and has already reached its three-year £3m loan-out projection in just 18 months after seeing a 50% increase in demand for its service.

Vicky McCourt, chief executive at Smarterbuys Stores said: “There are some concerns among ethical lenders about how the new cap can be made to operate in the best interest of the rent-to-own borrowers. For instance if the profit margin for the lender is reduced, people on low incomes could eventually have even less choice and may be driven to borrowing from doorstep lenders and those operating outside the law, pushing them deeper into debt.

“As a not-for-profit business we can make sure our rates are consistently cheaper than the market alternatives, and our agreements are for two years rather than the commonly offered three or four years, in which borrowers end up paying more. If our customers have difficulty or are on Universal Credit, we can extend their loan without any extra cost.

“And by extending our offering to anyone on a low income, not just social housing tenants, has resulted in a 4000-strong customer base, of whom 68percent completed their loans either on or before time, which is much higher than the industry average, and helps borrowers build a good credit record.

“The surge in demand for our services shows that people on lower incomes who are excluded from mainstream credit are becoming increasingly savvy about shopping around for affordable, responsible credit sources before they commit to a loan.

“Our business plan was focused on loaning out £2m in three years, so having exceeded that, and doing it in half of the projected timescale with the consumer always in mind is a big milestone for the team.”

Headquartered in Durham, not-for-profit Smarterbuys Stores which is authorised and regulated by the Financial Conduct Authority, was originally set up in 2012 in a partnership between an ethical community bank and established housing associations. The charity says it believes there are several factors behind the increase in the amount of credit that it has been able to extend.

“We are right behind the principle of more protection for financially vulnerable people, who in some cases can end up paying four times the retail cost of a product from unscrupulous lenders,” added Vicky.

“We refuse to do so called offers that encourage people to make an application just to get a sale. We would much rather people make considered purchases and we will always provide the best price we can.

“Our business is unique in that the Save as You Pay Scheme means our borrowers are guaranteed cashback at the end of the agreement. This is the first opportunity to save money that some of our customers have ever had, which in itself helps them become more financial capable and resilient.”

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