What Consumers Need to Know About Rent-to-Own Businesses

In California, Rent-A-Center was ordered by the state’s attorney general in 2006 to pay more than $7 million in restitution to thousands of customers. In Florida, one man reported to consumeraffairs.com that after his house burnt down he rented a TV. "Every day the payment was due they called at 8:00 a.m. wanting to know what time we would be there to pay. They threatened to come get the TV if we did not pay that day."

All over the country, from Nevada to New Jersey, Miami to Mercer County, hundreds of complaints about rent-to-own businesses are sent to attorneys general and websites like Ripoff Report. Most of them have to do with Rent-A-Center or Aaron’s, the two giants of the thriving rent-to-own industry.

So why do so many people still use them? "Poor people go to rent-to-own stores because others won’t extend them credit," says Byron Stookey, a tireless advocate for the poor who lives in Brattleboro, Vermont. "One could argue that they should save up until they can buy what they need at another store. But saving is difficult when you’re poor, and few rent-to-own customers have a connection with a bank. Besides, if there are few nice things in your life, rent-to-own is seductive."

The Association of Progressive Rental Organizations (APRO), the industry’s trade association, tries to keep its members in line with existing consumer protection laws. But advocates claim that key language in those laws is often carefully crafted by the industry itself, which has lobbyists in many states, and in Washington, D.C. Byron Stookey explains: "The industry has designed its language and practices to evade all normal regulation of interest [rates]. They evade installment sale rules by maintaining that they’re only renting, not selling. They evade ‘credit sale’ rules because, according to the industry, the customer is not paying interest, just rent, there supposedly isn’t even a credit check, and the customer is free to return the merchandise. And they evade ‘consumer lease’ rules because, under federal law, a consumer lease contract is for ‘a period of time exceeding four months’ – so they carefully define their rental-purchase agreement as a self-renewing weekly or monthly lease with an option to purchase by continuing to pay rent for a specified period of time.’ The rental-purchase agreement is a thing unto itself – no interest rules apply."

So what does a transaction cost? Here’s one example: A TV that sells for about $700 at a regular store is priced by Rent-A-Center at over $1500. By paying $39.99 a week for 77 weeks the TV is yours – at a final cost of almost $3100. That amounts to a 68 percent annual interest rate, or much higher if you compare it to financing the same TV you can buy for $700 at another retail store. (There may also be other fees involved at a rent-to-buy store, like a "loss/damage waiver fee.")

Right now there are two relevant bills pending in Congress: S. 738 introduced by Senator Mary Landrieu (D – La.) and H.R. 1744 introduced by Rep. William Lacy Clay (D – Mo.) Both purport to protect consumers. But industry-sponsored language buried under "definitions" and "relation to other laws" would give the industry federal exemption from important regulations governing credit transactions. And it would over-rule any state law that conflicted. (The bill prohibits any state from requiring that stores disclose their effective interest rates. The industry trade group says that to disclose interest rates "would be confusing.")

So advocates oppose those bills. Instead, they support the Consumer Financial Protection Agency Act (H.R. 3126) introduced by Barney Frank (D-Ma.) because it strengthens regulatory oversight of providers of "alternative financial services." Other ways in which the Clay and Landrieu bills fall short is that they provide no universal definition of "lease" or "lease agreement" and they don’t cap interest rates.

From February 23rd to 25th — at the annual APRO Legislative Conference in Washington, D.C. — lobbyists, industry leaders, and franchisees will be all over Capital Hill to advocate for their business interests and against real regulation. The Nov./Dec. 2009 issue of the industry magazine RTO Magazine warned in an article titled "Legislation Happens" that "Congressional action to further regulate financial institutions could have an unwarranted and detrimental effect on the rent-to-own industry."

The organization calls for "APRO grassroots advocacy" to ensure passage of the Clay and Landrieu bills, which the industry sees as providing "proper balance between consumer protections and small business competition." Both bills are modeled on industry-indulgent laws in 47 states that exempt rental-purchase agreements from usury and other laws that would constrain the industry. "The last remaining hurdle is federal legislation…," notes an industry legislative update posted on www.rtohq.org.

"The rent-to-own transaction is the most flexible transaction in the market today which is why many other industries…are successfully applying its no-debt, no-obligation transaction to their industries as well," the update says.

Advocates like Byron Stookey see the spread of rent-to-own stores as a threat to the welfare of low-income people. "There is a need not only for regulation but for education, among legislators as well as consumers, he says. "We also need alternative ways for people to acquire the goods they now get from rent-to-own stores." He points out that there are already over 8,000 rent-to-own stores and three million customers who use them in the U.S. He is troubled by their profit margins at a time when many retailers are seeing big losses. As Rent-A-Center’s website notes, "this economy has created a window of opportunity."

"Every day," Stookey says, "in countless towns, unnoticed lives are being destabilized by a rent-to-own purchase. And it will only get worse if we let the industry’s bills become law." That’s why he and other activists stand behind Rep. Frank’s bill, or the Financial Product Safety Commission Act (H.R. 1705/S.566) which President Obama has supported.

The need for better regulation is urgent. In 18 states Rent-A-Centers are now offering payday advances and signature loans, effectively putting them in the financial services business. Some offer a "VIP Select MasterCard" (i.e., a debit card). As Byron Stookey notes, "that is alarming."


Elayne Clift writes about women, politics, and social issues from Saxtons River, Vt. (www.elayneclift.com.)

Photo from NYC Indymedia.