The Financial Conduct Authority did a fine thing when it imposed price caps on payday lenders two years ago. The policy was popular and addressed obvious abuses. It was also well-crafted: payday lenders did not disappear altogether, which might have caused even nastier operators to fill the demand, but the survivors were obliged to clear up their acts.
The regulator should take its cue from that success and see if there is a robust way to design a price cap for rent-to-own companies such as BrightHouse that provide household goods via hire purchase agreements at sky-high rates of interest.
The failings identified by the FCA, for which BrightHouse will pay £14.8m in redress, are not directly linked to the cost of the contracts. Instead, the company, owned by private equity outfit Vision Capital, did not properly assess customers’ ability to pay and should have refunded some payments. But the FCA now knows what it is dealing with: an ugly industry with too few controls. BrightHouse’s redress payments will go to an astonishing 249,000 customers. These were not isolated incidents.
The FCA’s reluctance to impose a price cap on the rent-to-own industry seems to stem from a supposed technical difficulty. If interest rates were capped, operators might simply inflate the base price of the goods, leaving customers no better off. But that challenge doesn’t seem insurmountable. It just needs imagination to solve.
Citizens Advice, which has been calling for years for price caps to be extended to all forms of high-cost credit, should keep pressing. Nobody would pretend that a price cap is a cure-all, just as it isn’t in the energy market – but, in a rent-to-own market where the odds are stacked against customers, it would be a useful start.
Costa v ‘third wave of coffee’
Costa Coffee is a simple business. It sells cups of coffee, over-priced pastries and, more recently, keener-priced bacon rolls. But it seems we’ve over-looked the greater forces at play. “The UK is entering the third wave of coffee,” declared Alison Brittain, chief executive of parent Whitbread in an odd departure from her usual plain-speaking style.
In the new era, consumers will become “more sophisticated” in their coffee tastes and be more willing to pay more per cup. Well, maybe, but it’s so tricky to keep track of these waves. Allegra, a coffee industry body also cited by Brittain, reckons it has already identified the fifth coffee wave. This one, supposedly, is characterised by “smart boutique concepts” and started in the mid-2010s. That doesn’t sound like Costa at all.
Brittain, one assumes, pitched her wave theory to try to reassure investors that like-for-like sales at Costa haven’t gone permanently flat. If so, she failed – Whitbread’s shares fell 5%. Yet City chatter about whether the UK coffee market is close to saturation feels like a sideshow. The key point about Costa is surely that it still generates a return on capital of 40%, which is a good reason to keep opening more stores.
Besides, Premier Inn is a much bigger business for Whitbread and looks as reliable as ever. Underlying profits from the budget hotels improved almost 9% to £295m over the half-year. For its next trick, Whitbread hopes to cover Germany with Premier Inns, which would be a significant financial bet. If that plan works – and if returns match those in the UK – Costa’s current flat sales will be irrelevant.
Gadhia’s right to expose Goldman Sachs’ reluctance on gender equality
Jayne-Anne Gadhia, chief executive of Virgin Money, is entirely justified in asking why Goldman Sachs and JP Morgan haven’t signed the government-backed charter to promote gender balance in the City. Almost every other financial institution, from big firms like Barclays and Deutsche to tiddlers like the South Manchester Credit Union, have committed to linking executive pay to goals to improve gender equality.
Goldman Sachs’ explanation is especially feeble. This, remember, is an investment bank that drones on about how its people are one of its main assets and that “being diverse is not optional, it is what we must be”. Goldman pleads that it supports the review’s objectives but “as a global firm, it is challenging for us to make a regional commitment by signing up to the charter”.
Sorry, but that doesn’t wash: other global firms, such as HSBC and the Prudential, see no difficulty and have signed.
Gadhia was also on the money when she suggested that dreary City dinners, dominated by “men in dinner suits”, would benefit from a shake-up. She was at this month’s City banquet at the Mansion House and a tally of the list of guests explains why she would be shocked. There were 240 men and 73 women. Her idea that half the invitations should be sent to women in future is excellent.
