The cost of purchasing consumer products on a rent-to-own basis will be limited by new rules introduced by the Financial Conduct Authority (FCA).The new rules will limit the interest retailers can charge, meaning the total cost of the purchase would be no more than double the value of the item.
The FCA said it would save millions for the UK's most vulnerable consumers when the rules are introduced in April.
Rent-to-own stores allow customers to purchase goods at low monthly payments, rather than pay one, often expensive, lump sum. However, the FCA said that once interest had been added, customers can find themselves paying up to four times the value of the item.
Christopher Woolard, director of strategy and competition at the FCA, said: "The measures come into force from 1 April and we will be keeping a close watch on firms' compliance.
"We will review the impact of the price cap in 2020 and if further work is needed to protect these customers we are prepared to intervene again."
MoneySavingExpert founder Martin Lewis welcomed the move, saying: The rent-to-own sector is perhaps the most visceral example of the poverty premium in the UK.
"The fact that the most vulnerable with the least, pay four times as much for their electrical and white goods as everyone else is simply unjust, and it's rightfully about time that the FCA cracks down on it."