The collapsed rent-to-own firm BrightHouse has been accused by consumer campaigners of sidestepping the City watchdog’s guidelines by offering struggling customers payment holidays of only 28 days during the pandemic, rather than three months.
It comes as administrators of BrightHouse at Grant Thornton continue “maximising” loan collections as part of the firm’s wind-down plans, raising concerns over a potential conflict of interest.
The Financial Conduct Authority (FCA) first said in April that it expected rent-to-own companies such as BrightHouse to offer a three month payment freeze to customers facing financial difficulty due to Covid-19, and to avoid repossessions for as long the regulator’s guidance was in place.
It is meant to protect some of the UK’s most vulnerable consumers, who often turn to high-interest rent-to-own contracts when they cannot afford to pay upfront for household goods such as fridges, ovens, TVs and sofas. The typical rent-to-own customer is a young, female, single parent, living in rented accommodation, and is almost exclusively from a low-income household receiving benefits, according to the Financial Inclusion Centre thinktank.
Documents released after BrightHouse fell into administration in March show that while the company has temporarily halted interest and late fees and “increased flexibility” on payments, it was only offering its 140,000 rent-to-own customers an initial 28-day payment holiday. That is just a third of the breathing space recommended by the regulator.
Documents also showed that the administrators at Grant Thornton have been focused on “maximising the value of the loan book collections” as they wind down the company’s operations and return money to its creditors, which critics say could pose a conflict of interest.
Mick McAteer, a former FCA board member and co-founder of the Financial Inclusion Centre thinktank, said: “There is a potential conflict between the interests of the administrator – and those they represent – and the vulnerable customers who owe money to BrightHouse.
“The way the options are being presented to customers runs the risk of vulnerable customers missing out the best option for their circumstances. It could also help the administrators recover more assets,” he added.
BrightHouse appears to be taking advantage of a loophole in the FCA guidance, which says a firm should grant a payment deferral for three months “unless the firm determines (acting reasonably) that it is obviously not in the customer’s interests to do so”.
However, the FCA would not confirm whether it would be taking any action. “We are continuing to work with Grant Thornton during this administration. We expect them and all lenders to offer each consumer appropriate support, which includes payment deferrals.”
The FCA said BrightHouse could offer forms of support other than a payment deferral, but only if it was in the customer’s best interest. It said deferring payments for 12 weeks could put borrowers in a worse situation long-term.
Grant Thornton confirmed there was no interest charge of any kind applied when customers were granted a payment holiday, though a break would extend the lifetime of the loan.
But Sara Williams, a debt adviser and author of the Debt Camel blog, said BrightHouse had not treated customers fairly and often expected borrowers to resume normal payments after 28 days.
“People on furlough have had a store manager turn up at their house. Some customers are being contacted several times a day. This is not how a responsible firm should behave when it knows a customer is in difficulty,” she said.
“The FCA’s rules say that a lender should allow a customer in difficulties reasonable time and opportunity to repay – these apply even when a firm is in administration,” she added.
Rent-to-own business models have long been controversial. Before it went bust, BrightHouse charged interest of up to 69.9%, which on top of service and insurance fees could mean customers were paying two to three times more than on the high street. Some customers were never able to own the goods if they fell behind on payments.
Grant Thornton said BrightHouse had been engaging with customers after the initial 28-day holiday to see whether other forbearance options – including a further pay freeze – might be appropriate. “Having reviewed the FCA guidance … the joint administrators deemed the current measures in place for BrightHouse customers impacted by the coronavirus pandemic to be the most suitable in the circumstances.”
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