Appliances, cars, smartphones, televisions: long-term leasing (LLD) offers are multiplying and escaping consumer credit regulations. In its 2021 annual public report, the French State Audit Office (Cour des Comptes) warns of this new practice and calls for changes in regulations.
Long-term leasing, a practice similar to consumer credit
Unlike lease-to-own (LOA) offers, with which they share many similarities, long-term leasing offers are not subject to consumer credit regulations, and do not "fall within the remit of the supervisory authorities for banking and financial institutions", the Cour des Comptes report points out.
Even if the final objective of long-term leasing is not the acquisition of the product, there are many similarities with consumer credit. However, the regulations that apply to these offers, as well as the information made available to consumers, are the same as for conventional leasing, which is much less regulated.
"This discrepancy in the supervision of systems that are relatively similar in terms of their purpose is all the more problematic given that the spread of these offers, presented as alternatives to cash payment, is growing for the financing of everyday products such as cell phones, household appliances and multimedia equipment," explains the Cour des Comptes.
Insufficient consumer protection
The Cour des Comptes report points to a series of factors demonstrating the inadequate protection afforded to consumers taking out long-term rental contracts.
First of all, there are no regulations governing early termination of long-term leases. After consulting the offers of 4 major retailers, the Cour des Comptes found that early termination was possible, provided that the consumer paid the full monthly instalments.
In the case of consumer credit, the consumer is protected by law, which clearly authorizes early repayment, usually without charge or penalty.
The information available to the consumer is far less comprehensive than when taking out a consumer credit. What's more, during a long-term leasing contract, the consumer receives no information on the rents already paid or those still to be paid.
Fees charged in the event of consumer default are freely determined. These are generally "variable flat-rate charges for direct debit rejection" and interest on arrears, the rate of which is "sometimes close to the usury rate", warns the Cour des Comptes.
Cumulative rental income higher than purchase price
To take a closer look at the financial benefits of long-term leasing, the Cour des Comptes (French Audit Office) carried out a comparative study.
For example, for a television set with a purchase price of 294 euros, the consumer on a long-term rental contract will pay a total of 390 euros, i.e. 33% more. For a refrigerator costing 749 euros, the customer will pay 1034 euros in accumulated rental charges, a price difference of 38%.
Of course, long-term leasing generally includes warranties and after-sales service, but the financial benefits of these offers are still limited. " Attractive because of the low rents offered, and accessible to all customers without a credit check, long-term leasing can be a very restrictive commitment over several years", points out the Cour des Comptes.
It therefore recommends a change in the legal framework, "insofar as the rapid spread of long-term leasing for everyday capital goods may lead to financial consequences similar to those of consumer credit".
According to the report, new regulations would "reduce the risk of circumventing consumer credit legislation", while helping to prevent overindebtedness.