The cap is likely to come into force on 1 April next year. The FCA estimates it could save consumers up to £22.7m per year.

‘Rent to own’ allows someone to rent household goods, but the rental payments are set against the final cost. It is often used by the poorest in society. The FCA said that only around one-third are in work, most are on incomes between £12,000 and £18,000 and most will have missed a bill payment in the last six months.

While rent-to-own could be a useful way to enable poorer households to buy important household items such as washing machines and cookers, companies that provide the service often charge huge costs, and will often add-on insurance and warranties. The FCA has found examples where customers in rent-to-own agreements pay more than 4x the average retail price.

The FCA’s price cap will limit both the cost of the product and the charge for credit. Under the proposed cap, credit charges cannot be more than the cost of the product and RTO firms will need to benchmark the cost of products against the prices charged by three other retailers.

Andrew Bailey, chief executive of the Financial Conduct Authority said: “Today’s measures are designed to bring down very high prices in the rent-to-own sector, which is used by some of the most financially vulnerable in our society. A cap will prevent firms charging over the odds for essential everyday items like cookers or washing machines. We believe a cap is the only intervention that will effectively tackle the highest prices.

‘We want to stop consumers having to pay many multiples more than the price of a product on the high street. These changes build on the measures we have already taken across the high-cost credit sector.”

The FCA also plans to introduce a 2-day cooling off period for the sale of extended warranties, preventing firms selling at the point of purchase. This will come into force on 22 February 2019. However, the FCA also says that it recognises lower income households face challenges in accessing credit, and will highlight alternatives.

The consultation on the price cap and benchmarking proposals will be open until 17 January 2019.