The Fine Print

Maggie Harris says she’ll never do it again.

Over the years, the nurse in St. Paul, Minn., has rented a bedroom set, a washer and dryer and two diamond rings from a rent-to-own franchise. Harris made her weekly payments, she said, but the store kept few records. Twice she had to produce receipts proving her payments, including a time when the store sent three men to repossess some items.

“They’re rude and they try to intimidate you,” said Harris. “Their problem is the majority of their clients are people on welfare, people on fixed incomes, people who can’t afford to buy anything, and they think they can get away with it.”

Long controversial, the rent-to-own industry is bracing for yet another attempt at regulation. Charging that the practice usually costs more than people are aware, Texas Rep. Henry Gonzalez, the top Democrat on the House Banking Committee, is expected to introduce a bill next month requiring such stores to disclose interest rates on purchases. That would help customers compare the item’s cost with buying it outright or on credit.

The industry will lobby against such disclosure, as it has twice before. A spokesman said that listing an item’s total purchase price, as 45 states require, is more meaningful than an annual percentage rate. He added that rent-to-own stores serve people by making goods available that otherwise would be out of reach.

Here’s how rent-to-own works: People can lease furnishings, appliances, jewelry and other items for long or short periods, and with the option of buying them. The prices seem low - until the contract’s terms are studied. A living room set might rent for $18.99 a week. But the contract might last two years, with customers paying several times the furniture’s value before owning it outright.

That’s because the cost includes what the industry calls “fees” for repair and delivery services. The industry says it does not offer credit.

But consumer advocates argue that anything other than the item’s price should be considered an annual interest rate. Not disclosing it as such is misleading, they say.

“If my credit card says 18 percent and my rent-to-own store says 78 weekly payments of $10, how do I know what the interest rate is?” said Edmund Mierzwinski of the United States Public Interest Research Group (USPIRG), by way of illustrating the confusion.

Customers of rent-to-own pay annual interest rates that average 100 percent, and can go as high as 275 percent, he said, citing a study released in June by USPIRG, a non-profit consumer organization here.

Critics also contend that rent-to-own stores are part of the “poverty industry” - pawnshops, checkcashing outlets and other businesses generally found in low-income, urban areas. The businesses charge higher rates than banks and stores, and serve customers who believe they cannot get credit.

“The PIRG study illustrates a side of the rent-to-own industry that targets low-income and minority customers and subjects these individuals to unfair contracts and unacceptable annual percentage rates,” said Rep. Carolyn Cheeks Kilpatrick, D-Mich., a Banking Committee member who applauded the USPIRG efforts.

But rent-to-own proponents say their industry is misunderstood.

“Our customers are primarily people with short-term needs or people in transition, and the benefit of rent-to-own is they can get a product immediately with no long-term commitment,” said Bill Keese, executive director of the Association of Progressive Rental Organizations, in Austin, Texas. These customers include college students, and unemployed or underemployed people.

Only a quarter of rent-to-own customers exercise the ownership option, said Keese, whose agency represents about 400 corporate members and 4,500 stores in the rent-to-own industry. Three-quarters of customers rent for an average of only three months.

And the stores don’t take advantage of the poor or uneducated, he said.

Market research shows about 94 percent of rent-to-own customers have a high school degree, and more than 20 percent have college or graduate school degrees, Keese said. Nearly three-quarters are white. More than 20 percent have annual household incomes of at least $50,000.

“Our customers are wealthier and more educated than the proponents of Gonzalez’s legislation would have you believe,” Keese said. “They have a very paternalistic view of certain people in our society when it comes to our industry and other industries.”

Meanwhile, legal battles continue across the country between rent-to-own retailers and consumers, with neither side able to declare full victory.

All states except North Carolina, Wisconsin, Montana, Alaska and Hawaii require dealers to disclose the full price of any rent-to-own product, but not necessarily the annual percentage rate. The industry supports these laws.

Consumers such as Harris have prevailed in lawsuits in Minnesota, Wisconsin, New Jersey and elsewhere, with Rent-A-Center and other stores being ordered in some cases to pay damages or refund money. In Vermont, the attorney general has ordered rent-to-own retailers to disclose the annual percentage rate to customers. But activists say some retailers have found ways around the order.

Consumers should read the fine print of every contract, consumer advocates say. And those pursuing rent-to-own because they fear credit rejection should explore the options.

“In a lot of these cases, people could probably get credit at department stores,” said Neil Fogarty, president of the Consumers League of New Jersey, a non-profit group in Montclair. “If they truly could afford $48 a month at rent-to-own, then they could afford $12 a month at Sears.”