The FT has reported that:
“Rent-to-own” retailers such as BrightHouse will be banned from charging vulnerable customers over the odds for household goods under new rules proposed by financial regulators on Thursday.
Rent to own involves customers obtaining products such as washing machines or electronics under hire-purchase agreements before taking ownership when they have completed all the payments.
Under the proposed rules, which will come into force in April, firms will be banned from charging more than 100 per cent interest on items.
The implication is obvious: would appear that 100% interest rates are considered fair. This is what it is like to live in the UK in 2018.
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At least when it comes to interest on white goods, there’s an organisation prepared to look into it, even if you don’t agree with the relevant threshold.
I don’t think it’s fair for councils to charge more than 20% council tax to people in the lowest income groups, but there isn’t a single regulator, government-funded NGO or political party trying to impose some sort of cap.
Richard, that’s not what the FCA are saying. It’s a total credit cap of 100%, which e.g. over five years would mean an interest rate of 15%.
See https://www.fca.org.uk/publication/documents/price-cap-rent-to-own-market-inforgraphic.pdf
And then note the other charges
But point taken
Do these deals last five years?
Really?
Cor blimey guvnor it’s a fuckin’ joke innit ?
Well no. Sadly it isn’t. I had something through the door the other day with two hundred and thirty something rate on it.
They’ll be wanting organ donations next. Giz a kidney and you can have a hovel. Can’t say fairer than that ! It’s not like we’re asking for both of them. Yet.
I saw a Twitter advert the other day for a company offering unsecured loans to people with poor credit history. Interest was 583% APR.
Jut another example of rent extraction, it’s not so much that high rates are offensive, they are. It’s that those least able to afford them get them, I know, risk, risk, risk. Which is just the financial way of saying it’s ok to target vulnerable folk. Orwell really was on to something when he advocated plain and clear language.
It’s all dreams and keeping up with the Jones’ and if you can’t hook them with high rates then you can just rob them blind instead:-
https://www.theguardian.com/business/2018/nov/21/bet365-denise-coates-paid-herself-an-obscene-265m-in-2017
Somehow obscene just doesn’t seem a strong enough word for that.
Remember Rumbellows? Trading under the group name Thorn in the USA they were charging more and using Hells Angels as debt collectors. You couldn’t make it up!
Rumbellows. Now there’s a blast from the past.
It’s not just to do with interest. These firms lend money to people who can’t possibly pay it back on the basis that a few do and the “interest” rate reflects the high likelihood of defaults and the costs of attempting to recover the debt. Again some debts will be recovered at least in part through the action of debt collectors. The loan company then makes a very small margin overall. If they are to be restricted to 100% interest they will simply go out of business.
Interest is the absolute best tool ever invented to ensure a trickle UP effect. I’d go o far as to say that’s its primary purpose despite claims to the contrary.
🙂
Eddie, it’s strange that you pose that question in a sort of ‘gotcha’ style. As Richard points out, and I have done so many times, you are talking about something entirely man made and invented out of thin air. The real question should be why is it not free? I also repeatedly remind people to remember their basics:-
labour, materials/resources and money/wealth – the first two are finite and last is infinite – this is a factual statement, yes you can invent rules and regulations to artificially limit the latter but there’s nothing you can do to change the finite nature of the first two.
So maybe you can explain why the state of a sovereign currency should do anything other than direct spend without any interest element? There are reasons, in the carrot/stick vein, Richard explored some in his recent post about a need for bond markets. But there are other options to encourage/discourage the behaviours he’d be targetting….it’s a discussion.
I think that’s a bit unfair to Eddie, Richard. The interest is not pricing the money it is pricing the perceived advantage of being able to obtain real resources now in exchange for real resources, including the borrower’s labour, that s/he is going to produce in the future. The interest “earned” then allows the lender to obtain other real resources – penthouse apartments in Mayfair, Ferraris, Sunseeekers and so on. All this, as you say, is accounted for in ledgers whether electronically or with a quill in a paper book.
In the case of BrightHomes they have the real resources – televisions, washing machines etc – which they lend to their customers for a rental, and the renter gets to own it after an agreed time. So they could argue that it isn’t really interest anyway; it’s rent. Car lease purchase schemes are much the same.
OK, but what is the proper price for this?
And is the price simply rationing?
I am playing games – but why not? What is the price of a free commodity – which money is
And we do not borrow other people’s savings – as we now know, so that is not the issue
eddie says:
“Alastair — you think money should be free?”
That sounds like one of those rhetorical questions which is supposed to nail an argument….
…..but …. Why should money not be free ? Or contrarily why should bankers be allowed to charge rent on money (which is what interest is) at a rate of their choosing when the money they are ‘lending’ is not theirs by right in the first place ?
We are re-learning things about money which were known thousands of years ago, and which we have since chosen to forget.