BrightHouse and false economy

Walk four blocks north along Fifth Avenue from the Rockefeller Centre, or three blocks south from Trump Tower and — opposite the Museum of Modern Art — you come to 681, Fifth Avenue, the home of Vision Capital’s New York office. Their main base, in London, is at 55, St. James’s St.

Prestigious locations in two of the most expensive cities in the world.

Vision Capital was founded by Julian Mash in 1997. Prior to that, he did an MA in Economics at Cambridge, followed by 5 years at Goldman Sachs, and he remains Vision Capital’s Chief Executive and driving force.

Vision Capital’s website has a section on their business principles, which include:

  • integrity beyond compliance
  • creating sustainable value for stakeholders
  • open and responsible as well as effective

The website also describes how they manage of £3.5 billion worth of combined revenues, and approximately 20,000 people around the world, across 14 businesses in which they invest as an “active owner”.

One of the 14 businesses they “actively own” is BrightHouse, the biggest “rent-to-own” (RTO) operation in the UK, which has over 3000 staff and 300 shops — mostly found in the country’s more deprived town centres.

In MIddleton, we’re unfortunate enough to have not just BrightHouse in our main open-air shopping area, the concrete expanse called Middleton Gardens, but also PerfectHome, one of their competitors, in the neighbouring shopping “mall”.

BrightHouse have been variously accused of targeting the poorest and most vulnerable families; mistreating and fleecing customers; harassing people who fall behind with their payments; and avoiding tax.

In 2014, responsibility for the regulation of the rent-to-own sector was transferred from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA) and, over the last year or so, the FCA has been working to address a number of concerns relating to how the rent-to-own companies manage “affordability assessments”, customers who fall into arrears, and the transparency of their information on prices.

Although they are required to act as “responsible lenders”, it appears that they may have been setting up credit arrangements with significant numbers of customers at high risk of falling into arrears, with the result that they then get hit with punitive late payment charges that push them further into debt.

BrightHouse’s Winter 2017 catalogue tells you how much a Sony PlayStation 4 Slim 1TB console with FIFA 17 bundle will cost if you buy it from them. The quoted base price of the product itself in the catalogue is £558.82. Add to that a charge of £156.47 for “ServicePlus” which “is included as standard with every product” and covers delivery, installation, repairs and replacement. On top of that, there’s an “optional product insurance cover” that isn’t really that optional in practice, which adds a further £166.40. With the interest rate/APR at 99.9% over the 130-week hire-purchase period, that brings the total cost to £1661.40.

That’s £1661.40 as a minimum, if you make every weekly payment of £12.78 bang on time.

£1661.40 for something that John Lewis’s website is advertising for less than £340, with a 2-year guarantee, with free delivery, and with the option of 2 years accidental damage cover for an extra £15.

Every PS4 that goes for £1661 instead of £340, and every washing machine and couch and fridge that BrightHouse sells to poor and vulnerable people, goes at least some way to funding those St. James’s Street and Fifth Avenue offices, the flights between London and New York, and the lifestyle of an international investment manager.

I get the feeling that when Julian Mash and Vision Capital commit to “creating sustainable value for stakeholders”, their list of stakeholders doesn’t include BrightHouse customers.

Their commitment to “integrity beyond compliance” looks a bit dubious too. The FCA have banned their punitive late payment charges, and have required BrightHouse to submit a business plan with revised consumer credit practices. They will decide soon whether or not BrightHouse will be allowed to continue in business as a provider of credit.

This is already having an impact on BrightHouse, with an announcement made in early February that 28 of their 311 stores are to close in order to reduce costs. It may be that with tighter restrictions on their lending practices and less room for manoeuvre around late payment charges, the business model turns out to be unsustainable.

The Daily Telegraph’s Business section has included three articles on BrightHouse — in October and November 2016, and in early February 2017 — that describe how predatory “distressed debt” hedge funds are licking their lips at the prospect of the company’s demise. “Legal and financial advisers are jockeying for position on the potential restructuring, with Moelis and PWC understood to be seeking appointment by bondholders. BrightHouse is working with Rothschild and the city law firm Freshfields.”

On the one hand, disadvantaged families cutting their spend on food and fuel so they can keep making the payments on their telly and, on the other hand, rich and privileged lawyers and financiers and consultants rubbing their hands at the prospect of a windfall.

We’re not really all in this together.

In the same way that the money trail goes from your local BrightHouse to Vision Capital, it goes from PerfectHome to Cabot Square by Marble Arch, and from BuyAsYouView to Hayfin in St. James’s, Westminster. These three international investment companies have an involvement in all kinds of business activities, but all three are making at least some of their money on the back of households that are struggling with money, have no savings and no access to credit.

I know that Julian Mash (Vision Capital), John van Deventer (Cabot Square) and Tim Flynn (Hayfin) have a responsibility to make more money for wealthy people, and I don’t doubt that they work hard to do that, but I wonder whether they might be just a little bit ashamed of being involved in something so blatantly exploitative.

I can’t imagine that they’re proud of it.

It’s not about them as individuals though. They are just notable successes in a culture that, either through ignorance or acquiescence, has allowed grotesque inequality to develop through the worship and protection of the financial services industry. And it feels disconnected from us, until we realise that the way they use the wealth they control has consequences for us and the people around us.

In our daily lives, on our high streets, and in our getting and spending, we can easily become immune to the impact of our own decisions on ourselves and others. If we spend at McDonalds or at Tesco or at Aldi, or if we buy from Cash Generator, what’s the impact on the local economy and therefore on local people — our neighbours?

We use the services that BrightHouse and PerfectHome or HSBC and Santander and Virgin and Starbucks offer, out of convenience or because we have no real choice, but what feels like a straightforward local financial interaction drip-feeds the hedge funds and the bondholders and the shareholders and the like while it diminishes the locality. The less money that stays local, the poorer we all are, and the more desperate the poorest become.

Politicians have supported and protected and danced around the finance sector for decades, either because it has been in their perceived direct interests (George Osborne and David Cameron, for example), or out of fear of the potential impact on government revenues if they don’t allow them to do broadly what they please (being very generous, Tony Blair and Gordon Brown).

This has come from a failed-but-yet-to-be-discredited philosophy/politics that’s been dominated by an economics which takes such little account of people that it should really be criminal.

The new political and social economy — which has to have people at its centre as its one real focus, not money or growth — will need to work on at least two complex questions:

  • how can we develop good local economies/communities that remove blights like furniture poverty rather than exploiting them?;
  • how can high finance be redirected to serve all the people, not just the wealthy?

We need a critical mass of political leadership that can convince people that that kind of future is right and possible and good for us all.

It might not be there yet, but I believe it’s on its way.

The future might not be perfect, but at least it’s bright.