Rent to own

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Rent to own (RTO) is an informal term for a type of business which rents items, most typically furniture or appliances, with the condition that the item will be owned by the renter if the term of rent is finished, or that the lease can be converted to a sale for a nominal fee at that time. Since rent to own stores often do not require payment up front, they are popular with the poor, but between high interest rates and higher cash prices than other stores, they are more expensive (often several times more expensive) than buying the same item outright. This has caused the rent to own industry to be accused of predatory lending.[1][2][3][4]

The RTO industry alleges that RTO is a lease, as opposed to a credit sale, and argues that no interest is charged.[5] This issue is in dispute, as advocates for low income consumers have successfully defeated attempts by the RTO industry to change the laws of New Jersey, Minnesota and Wisconsin, for example, to become industry-friendly.[6] Recently, the RTO industry lost a major lawsuit in the New Jersey Supreme Court.[7][8] The court held that its practices are subject to the state's 30% criminal usury ceiling.

Industry-wide, 75% of all RTO transactions are weekly; the consumer agrees to pay a weekly amount for leasing property. The remaining 25% of agreements are biweekly and monthly. RTO agreements are generally written for a 12, 18, or 24 month term. If the consumer rents the merchandise for the full term, ownership is acquired. Most RTO transactions include an early buyout clause that allows the consumer to purchase the merchandise at any time during the term for 50% of the remaining rental payments.

A consumer may return a rental item at any time without penalty. Most companies have a lifetime reinstatement clause, allowing the consumer to re-rent a returned item (or similar item) and receive full credit for all previous rental payments made. The United States Department of Defense considers rent-to-own a predatory lending practice (defined as an "unfair or abusive loan or credit sale transaction or collection practice"), and groups it with payday loans, title loans, refund anticipation loans and other similar practices.[9]

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  1. ^ Predatory Rent To Own Stores. Federation of State Public Interest Research Groups. Retrieved on 2008-04-18.
  2. ^ Predatory lending: There ought to be a law. CNN. Retrieved on 2008-04-18.
  3. ^ Rent-to-Own. Americans for Fairness in Lending. Retrieved on 2008-04-18.
  4. ^ Carr, James H.; Jenny Schuetz, Lopa Kolluri (2001-08-27). "Financial Services in Distressed Communities: Issues and Answers" (PDF). . Fannie Mae Foundation Retrieved on 2008-04-18.
  5. ^ About Rent-to-Own. Association of Progressive Rental Organizations (APRO). Retrieved on 2008-04-17.
  6. ^ “Rent-To-Own Stores”, Wisconsin Briefs (Legislative Reference Board, Wisconsin State Legislature), 2004, <http://www.legis.state.wi.us/lrb/pubs/wb/04wb11.pdf>. Retrieved on 18 April 2008 
  7. ^ Hilda Perez v. Rent-A-Center, Inc. (A-124-04), U.S. PIRG
  8. ^ “N.J. Supreme Court rules against RAC”, Furniture/Today 30 (29): 38, 2006-03-27, ISSN 0194-360X 
  9. ^ Report On Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents - DefenseLink