If ever there was an indication of mission creep, then it is the futile attempt of regulators to cap the cost of credit. Just as mission creep brought down the mighty US in Vietnam, so will Price Caps in "Rent to Own" for the FCA.
In 2014 the FCA brought in caps for the High-Cost Short Term Credit sector. For anyone that cares to look, the introduction has been a disaster with personal insolvencies each year rising by about 50% since 2014. A fact that is conveniently forgotten about by campaigners.
This should be an indication to regulators that price caps may not work, we know they don't work. Unfortunately, The FCA has not learnt from such lessons and are about to start charging once more. This time into the Rent-to-Own market.
The FCA believes they can bring caps into this market too. This is one that brings a smug grin to our eyes, this is the one that is going to teach the FCA how powerless they are, and when it does, everyone else will see that the Emperor has no clothes. The FCA will fall, just like the FSA before it.
Why is Rent to Own different?
It is simple, there isn't one single variable like there is in lending, there are multiple. The FCA can't control all of them with price caps; this is where the Vietnam analogy comes in. Even though they can't, they will be forced to try if they want to save face and not look defeated.
They can control the APR with price caps, no problem and that is easy. But what they will start to struggle with is that companies will begin to shift profits that they previously earned from APRs, into larger margins for goods. For example, instead of selling a TV for £500 with 200% APR, over four years. They may now sell that same TV at £1000 with zero APR over four years.
The FCA may slap themselves on the back regarding the APR, but the consumer is no better off. In fact, it's always worse off when Government departments get involved.
They need to understand the customer will still be willing to pay double for the TV, because they can't get credit anywhere else. It might seem bizarre to people on £100k a year, but that's what will happen.
How would The FCA stop this?
Well, they would have to go in and say that the company could only sell TVs at 10%-20% above what they bought it for?
That may work for a few weeks but what if these rent to own firms buy their goods from an expensive subsidiary company? The profits are just shifted to the expensive subsidiary company.
Now they are starting to tell companies not only what they should sell at, not only what they should charge in APR, but now they are saying to them what price they should buy good at.
What happens when they then start to increase delivery charges to hide profits? The list goes on and on and on.
The FCA is on a very slippery slope, and they will lose. They aren't smart enough, and they aren't nimble enough to keep up with intelligent retailers. A blind man and his dog can see what is about to happen, but not the FCA.
At least the current method is transparent, just leave it be. Don't make fools of yourself by getting into things you can't get out of without losing face.