The rise of subscription services in all areas of life is hard to miss, as many businesses (both existing and newcomers) have shifted to a subscription-based operating model. 

This is not only true for businesses providing digital-related services, but also those providing physical goods, given the emphasis placed on sustainability and the circular economy.

The mission often revolves around changing consumer mindsets from that of owners, to users, so that consumers gain the benefit of a product without it going to waste and before the end of its lifecycle.  

 The way it typically works is that customers hire goods for a certain period of time, anywhere from a couple of months to a few years depending on the item, and simply return the goods when no longer needed.  We’ve seen businesses operate rental models on a rolling basis, for instance clothing, or on a one-off arrangement for longer term rentals.

While clothing and financial regulation don’t typically go hand in hand, the consumer credit regime is often overlooked by businesses wanting to operate this type of model.  Businesses can find themselves in hot water where they carry out regulated consumer hire activities without being authorised by the FCA. 

This is because the bailment of goods can be a regulated activity under the Financial Services and markets Act (Regulated Activities) Order 2001 where agreements between owner and hirer are capable of subsisting for more than three months.  Businesses that are not duly authorised by the FCA risk being in breach of the general prohibition (a criminal offence).

As not all jurisdictions regulate consumer hire in this way, international businesses looking to the UK can also find the financial regulatory landscape a barrier to market entry.  

While the authorisation process in respect of consumer hire can be more simple than when applying for authorisation to carry on other regulated activities, businesses will still be required to comply with the full suite of regulatory obligations that accompany being FCA-authorised – and this is not a small undertaking.

The key takeaway: the shift to a user-culture which emphasises reusing, less waste, high quality and value for money must be a welcomed change if we are to make both environmental and social progress, but adequate preparation and regulatory planning is required from the outset to ensure rental business models comply with relevant regulations.