UPDATE 2-UK markets watchdog caps rent-to-own prices

Britain's markets watchdog will cap prices people pay for televisions, washing machines and other household goods bought on "rent-to-own" credit from April, it said on Tuesday.

Rent-to-own (RTO) firms charge a weekly sum for three years to consumers who typically end up paying several times more than the up-front cash price of the item. The Financial Conduct Authority (FCA) said the cap would be set at 100 percent, meaning people should not pay more than double the average price charged by mainstream retailers, a step the watchdog said would save consumers up to 22.7 million pounds ($29.9 million) a year.

There was no immediate comment from companies offering RTO agreements. But the FCA said in its statement that "RTO firms did not agree with the rationale for the price cap and argued that we had not made a case that high RTO prices cause harm." High-cost credit has come under intense political scrutiny after a decade of austerity as more people in work have started borrowing to pay their bills and using food banks.

"This price cap has been designed to target some of the most excessive prices in the rent-to-own market," said Christopher Woolard, the FCA's executive director of strategy and competition. "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."

The cap means credit charges can not exceed the cost of the product, and firms will need to benchmark the cost of products against prices charged by three mainstream retailers, including delivery and installation. Two firms - BrightHouse and PerfectHome - account for more than 90 percent of outstanding balances on RTO agreements in a market that has shrunk to less than 400 million pounds from 700 million pounds in 2015, the FCA said last November when it flagged the cap.

PerfectHome said it would adjust sales to reflect the new rules and customers would start seeing changes to agreement terms for new products in the coming weeks. Consumer body Citizens Advice said the cap would stop people paying over the odds for products. StepChange, which helps people in debt, said it also welcomed the government's look at whether no interest loans for the most hard-pressed households were feasible as an alternative to RTO.

Previous intervention by the FCA led to compensation worth nearly 16 million pounds for 340,000 consumers who bought goods from BrightHouse, PerfectHome and Buy As You View. ($1 = 0.7599 pounds) (Reporting by Huw Jones, Editing by Andrew Heavens and Mark Potter)

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