BrightHouse sell household appliances, furniture and tech products with the customer making weekly payments, usually for three years, and owning the item at the end.
But it has emerged that only some 50 percent of BrightHouse contracts complete properly. When BrightHouse Chief Executive Hamish Paton gave evidence to the Treasury Select Committee in February 2018, he said:
Typically across all the contracts about half get to the point of ownership. Maybe a third get to the point where [customers] change their mind and hand the product back to us. And the remaining sixth would be situations where the customer doesn’t return the product but stops paying, that would be in default.
Hire purchase contracts used to have the nickname buying on the never-never. For too many BrightHouse customers it is now clear that this is literally true.
That wasn’t the only surprise in Paton’s evidence – BrightHouse has also changed its returns and repossession policies.
A typical BrightHouse contract
- Take the Beko 9kg EcoSmart washing machine – in March 2018 that was on BrightHouse’s site at £435.
- Then interest is charged at 69.9% typically (up to 99.9% in some cases), so, after delivery and interest, the BrightHouse washing machine ends up costing £975.
- A pretty similar machine from Appliances Direct costs £250. Adding on delivery and connection takes this to about £300.
In addition, just over 60% of BrightHouse customers pay for insurance and warranties. For this washing machine, they add up to an additional £422. The FCA said in January 2018:
We are concerned about the impact of these costs on consumers’ finances and that they do not consider the costs or value of these products before buying them.
What about affordability checks?
A significant level of failure is inevitable with a product which is aimed at people with low incomes and poor credit ratings. But if only a half of customers manage to finish the payments and actually buy the goods they wanted, that suggests that something is going badly wrong with BrightHouse affordability checks.
As Gareth Evans, Co-Director of Financial Inclusion Centre, says:
This is an astonishing admission by BrightHouse and demonstrates just how flawed and detrimental this business model is. The risk of poor lending standards, sales practices and exorbitant costs are all borne by the most financially vulnerable households and provides clear justification for regulatory intervention to protect consumers.
Given that around half of BrightHouse customers don’t even get to own the goods that they have in many cases paid years towards – this industry should be rebranded Rent Not To Own.
Late payment charges
Late payment charges provide another insight into the problems BrightHouse customers have.
From August 2017, the company has charged a single £12 charge per customer per late period, so a customer missing three weekly payments in a row is only charged once. This late payment charge is often going to be very high in relation to the missed payment – a customer buying the washing machine in the example above is only paying £6.35 a week. A £12 penalty makes it harder for them to get their finances back on track.
BrightHouse has received £3million in late payment charges in the six months since these charges started. That suggests that in a full year about 500,000 late payment charges will be paid. The actual number of late payment episodes will be higher, as some of the charges will never be paid when the customer defaults and never starts paying again.
New returns & no repossessions policy
BrightHouse is now operating a policy that anyone can return an item at any time and not owe anything. Paton said during his evidence that a customer’s credit record will not be affected if an item is returned. As their website says:
We know circumstances can change and that you may decide you no longer want your product. That’s why we’ll accept a return at any time during your agreement with no further payments to be made.
Paton also said that if a customer stops paying and doesn’t engage then:
At the end of 120 days we write off that product.
BrightHouse has confirmed to me that this is now their policy:
We choose not to repossess. It’s in our customer’s interest and ours to maintain our relationship so that they can continue to have access to household goods. We prefer the path of forbearance, and if it comes to it, the customer having the option to return the product at any time with nothing left to owe.
Customer-friendly policies, but some questions
BrightHouse is dealing with customers who will often be vulnerable. BrightHouse’s new operating policies that reflect this, allowing a customer a better range of options if their finances are difficult, are to be welcomed.
An early return may well be a customer’s best option if they are struggling to pay. But in many cases the customer will have:
- suffered hardship trying to manage the high repayments up to that point,
- may have got into arrears on others debts or bills,
- may be very stressed and worried, and
- will have paid a very high price just to rent an item that they wished to buy.
The legal basis for the contracts hasn’t apparently changed. A hire purchase contract allows the creditor to repossess the goods if the customer defaults. BrightHouse may be operating a different policy, but a customer who reads the contract may not realise this.
Unless a customer is aware of the new policies, many will continue to struggle. What is BrightHouse doing to ensure customers know about the full returns issue? And that it won’t affect their credit record?
And what is a debt adviser to do? Secured loans for essential goods are treated as “priority debts”, but if there will be no repossession perhaps they shouldn’t be. This can be especially important when advising a client on insolvency – BrightHouse debts can be problematic for Debt Relief Orders. A clear statement from BrightHouse to the major debt advice firms and the Insolvency Service saying that goods will not be repossessed in a DRO or bankruptcy may help.