Around 400,000 of the UK’s poorest consumers could soon see a cap on the charges they pay if they buy domestic goods on a rent-to-own (RTO) basis.
The Financial Conduct Authority (FCA) has decided that under the proposed cap, credit charges cannot be more than the cost of the product.
RTO firms will also need to benchmark the cost of products against the prices charged by three other retailers.
The FCA said it was protecting “the most financially vulnerable people”.
As part of its research into high-cost credit, the FCA said only one third of RTO customers are in work, most are on low incomes of between £12,000 and £18,000, and are likely to have missed a bill payment in the last six months.
RTO customers make monthly payments, in effect renting goods until they have paid in full.
But they currently pay up to five times more for cookers, fridges and televisions than if they bought them outright on the High Street.
Annual rates for credit can be as high as 99.9%, according to the FCA.
Many customers have ended up in a cycle of debt as a result of the high charges.
The main providers of rent-to-own goods are Brighthouse and PerfectHome, which earlier this year had to pay compensation to 37,000 customers for failing to carry out proper affordability checks.
Andrew Bailey, chief executive of the Financial Conduct Authority said: “Today’s measures are designed to bring down very high prices in the rent-to-own sector, which is used by some of the most financially vulnerable in our society.
“A cap will prevent firms charging over the odds for essential everyday items like cookers or washing machines. We believe a cap is the only intervention that will effectively tackle the highest prices. If implemented it will save consumers up to £22.7m a year from excessive charges.
“We want to stop consumers having to pay many multiples more than the price of a product on the High Street.”