Just $14.99 a week for a color television sounds pretty good to a $6-an-hour factory worker or a mother on welfare. For people without the cash or the squeaky-clean credit history to buy it at Sears, "renting to own" offers an alluring alternative: easy payments, no credit check, and no hassles. But your mother should have told you this: When you hear phrases like "no credit check and no hassles," keep your hand on your wallet. Someone's trying to pick your pocket.
The rent-to-own equation is simple. When a rent-to-own store brings in a new piece of merchandise, it multiplies the wholesale price by a set percentage - usually 350 percent to 450 percent - to come up with the total sales price. Then the store divides that total by a number of weeks or months - typically 78 weeks or 18 months - to determine what the installment payments will be. Throw in fees for insurance, late charges, and other submerged costs, and eventually customers pay three, four, or five times what they'd spend on the same item at a retail store. That's why a 20-inch TV that costs $329.99 at Sears will cost as much as $1,200, at Rent-A-Center, the nation's largest chain of rent-to-own outlets.
With these exorbitant prices come a set of rules that grossly favor the retailer over the customer. Iris Green, a public housing resident in Paterson, N.J., paid nearly $4,000 to Continental Rentals toward a stereo, washer, freezer, and other items that had a cash value of less than $2,800. The she got sick and the paychecks from her job as a nursing home aide stopped coming. Continental came and took everything. Sandra James signed a $2,485 rent-to-own contract for bedroom furniture from a Rent-A-Center in Chicago. She fell behind in her payments and the store swore out a theft change against her. She says the manager told her the warrant would be dropped if she paid $177.50. She paid but then was hauled off her job by police officers accompanied by the manager. She spent the night in jail.
Rent-to-own got its start back in the sixties, when state and federal government were passing laws to control ghetto merchants who used retail installment contracts to fleece the poor. The industry's trade group, the Association of Progressive Rental Organizations (APRO), says the rent-to-own industry was born during this time "as a result of the tightening of consumer credit and burgeoning federal consumer protection legislation."
Rent-to-own stores have managed to avoid tough consumer laws by tinkering with the traditional retail credit contract. Mainly, it's a matter of changing the terminology. An interest charge becomes a "rental fee." A late charge becomes a "reinstatement fee." Merchandise that is repossessed is "returned by the customer." Buying an item is "exercising a purchase option."