It’s been a long time coming, and even now it’s still not good enough.
Earlier this week some modicum of justice was finally delivered to the long suffering customers of BrightHouse. Following a lengthy investigation, the Financial Conduct Authority (‘FCA’) has concluded that BrightHouse has been irresponsible by lending to (and to our mind, therefore exploiting) people who could not afford its extortionate prices. A redress package of just short of £15 million has been announced for 250,000 customers. On the face of it that sounds like a lot of money. But it averages around just £60 per person, and is woefully inadequate to compensate people for the damage that this company has caused.
Five years ago we undertook a project with customers of BrightHouse and other rent to own companies that had been engaged by the Thrive project in Teeside. That project brought the direct testimony of rent to own customers from the North East to roundtables in London with representatives of BrightHouse’s senior management, and the then regulator for consumer credit – the Office of Fair Trading (‘OFT’). The concerns of customers were crystal clear.
- Prices were excessively high, and there was a lack of transparency about the cost of using rent to own stores. BrightHouse marked up the cash price of goods in order to keep the headline APR figure artificially low in its advertising. This is a sharp practice known as ‘colourable pricing’, which the FCA could, and should, ban as soon as possible;
- Statements provided to customers were unclear and caused confusion, and BrightHouse profiteered from the sale of expensive insurance and ‘service cover’ products which were foisted on customers at the point of sale;
- There was very poor customer service in the event that goods broke down and needed repair during the course of the agreements – which typically lasted for three years; and
- When people got into financial difficulties, the firm levied punitive default charges which drove people further into debt.
When we reported on these issues in 2012, BrightHouse told us that they would put in place a ‘customer charter’ that would address them. However, within 12 months of making that commitment, BrightHouse subsequently informed us that they had decided to make the purchase of insurance compulsory with all new agreements, and it became apparent that there was little to no evidence of improvement in their overall practice.
The OFT – which was fully aware of the problems with this company at the time – did nothing whatever. Its Chief Executive of the period, Clive Maxwell, is currently Director General for Energy Transformation at the Department for Business, Energy and Industrial Strategy. Clive surely has some questions to answer for the OFT’s failings, not least because the current FCA scheme for redress does not extend back beyond 1st April 2014, which is when it took over responsibility for consumer credit regulation from the OFT. Customers who were ripped off prior to that time, and there are a lot of them, will receive nothing.
Following the failure of the company to clean up its own act, and faced with the lack of any real intent to protect consumers within the OFT, we changed tack and worked with Yvonne Fovargue MP and the All Party Parliamentary Group on Debt and Personal Finance, which launched an investigation into the rent to own sector in 2014, and which published its report in February the following year. It’s that report, for which Yvonne and the APPG deserve a great deal of respect, which prompted the FCA to prioritise the rent to own sector in its authorisation process, and which has now led to the current announcement.
So what’s wrong with the redress scheme as it stands?
Well, firstly there is no transparency about how the amounts have been calculated. An average payout of £60 per customer for agreements which often ran into the thousands seems paltry. The FCA should publish its calculations for this and all future redress schemes.
Secondly, the scheme doesn’t cover the issue of ‘mis-sold’ and excessively costly insurances and service cover. For a period immediately prior to the APPG’s report BrightHouse made it compulsory for customers to take these out, but even when it was ‘optional’ the prices of these products were ridiculously high. This was especially so where customers had more than one outstanding agreement – in which case a general home contents policy would have been much cheaper.
Thirdly, there is nothing in this scheme to compensate people for the high default charges that were levied against them. This is despite the FCA noting, back in July last year, that it had identified problems with the ‘arrears handling procedures’ at BrightHouse. The silence in this respect is almost deafening.
Of course, even if all of these issues were properly addressed – even if Clive Maxwell apologised for the OFT’s failings; the FCA banned ‘colurable pricing’; extended the redress scheme back to at least 2010; and expanded its scope to compensate people for excessive default charges and rip off insurance and service cover – it would not resolve the fundamental problem which BrightHouse typifies.
Simply put: lending to people on very low incomes at high prices does not provide a solution to their problems, but exacerbates them. The FCA needs to create a boundary around the credit market by expanding the scope of the payday cost cap to all forms of consumer lending and Government needs to provide a decent social security system.