Rent-to-Own (RTO)
What’s in the name?
Rent-to-own stores may be called “rental centers,” “rent-a-centers,” and “sales and lease ownership.”
Who makes rent-to-own deals?
Independent stores that are in the business of renting new or used household goods to consumers who feel that they can’t afford to buy in one payment.
How do rent-to-own loans work?
You go into the store and chooses a television, furniture, or other household item. The store then rents the item to you and usually requires “rent” to be paid weekly. The payments can last from 52 weeks (one year) to 78 weeks (one and a half years). The contract provides an option to buy the goods if all payments are made. If even one payment is missed, the store can take back the household goods and you lose the value of all of the payments.
The rent is expensive. For example, the consumer will pay between $1,000 and $2,400 for a TV, stereo, or other major appliance worth as little as $600 if new, or less if the item is used. This means that a customer of a rent-to-own store may pay 1 ½ to 12 times what a cash customer would pay in a traditional retail store for the same item.
The store does not take into account whether you can afford the payments and does not check into the amount of other debts and obligations you owe, for example, car payments, rent or mortgage payments.
What are the abuses with rent-to-own?
- Consumers are not told the amount of interest they are charged at rent-to-own outlets, and are often charged bogus fees. The store never tells the consumer the true cost by using an interest rate, which can range from 190% to 275%. Stores may even tack on additional fees to cover damage to the items. These fees can be totally bogus, and the fee policy may be a sham.
- Consumers pay many times the value of the product. The goods “leased” through rent-to-own are very expensive. In fact you can pay many times the value of the appliances or furniture because of the high interest rates the stores charge.
- The goods may be used, even if advertised as new.
- The consumer can lose the value of all payments if one is missed and the rent-to-own store repossesses the items.
- Discriminatory Marketing. The rent-to-own industry advertises heavily in minority media, on busses, and in housing projects. They emphasize quick delivery, no or small down payments, no credit checks and the chance to own.
- Abusive Repossession. Some of the rent-to-own stores engage in abusive repossession tactics, such as breaking and entering into the consumer’s home, or threatening to file criminal charges if the consumer does not return the items to the store him or herself.
Are rent-to-own deals legal?
Yes, in most states the industry pushed laws in the 1980s to make this practice legal in every state except New Jersey, Minnesota, Wisconsin, and Vermont. But even in states where rent-to-own in its current form is permitted, the stores may not always comply with the law.
What can you do if you have a problem with a rent-to-own deal?
AFFIL can’t guarantee that help is on its way, but these are our best suggestions.
- File a complaint: Even if the rent-to-own contract is legal, the store may be violating your state law. You can file a complaint with an appropriate agency in your state. You should think about doing this for two reasons: first, there may be a violation of your state’s unfair and deceptive practices law. Second, you can let your state agency know that you don’t like these loans because they are too expensive.
- Contact your state legislator: You may also write to your state legislator and ask that your state regulate these loans to better protect consumers.
- Contact your federal legislator: You may also write to your U.S. Congressperson or Senator. It is important that they know your story so they can decide whether changes in the federal laws need to be made.
- Find a lawyer: AFFIL is not a lawyer referral service and cannot refer you to a specific lawyer. If you want to talk with a lawyer who might help you with your debt problems, you can review the list of members of the National Association of Consumer Advocates (NACA). You can also contact your state bar association’s lawyer referral service.
Where can I find a better small loan product?
It is best to avoid rent-to-own stores altogether. To buy furniture or TVs, check to see if a local department store offers “layaway.” Layaway means that you buy the appliance but it is held by the store until all payments are made. Usually, the store does not charge interest or fees for this service. Or, there may be used appliance stores in your community where you can find the appliances you need for a very low cost.
If you need a loan to buy needed household good, the Consumer Federation of America, an AFFIL partner, has tips on how to avoid expensive and abusive small loans and to find reasonable loan products. This site discusses payday loans, but its advice can help even if you are looking for a loan to buy furniture or appliance.
What do we know about the rent-to-own industry?
The rent-to-own industry had 2.7 million customers in 2005. Its total revenue was $6.6 billion. This means that the average customer paid about $2,444 to an rent-to-own store in 2005. In 1991, the average customer payment was only $1,226. The industry reports about 8,300 rent-to-own stores nationwide.
