Help Rein in Runaway Rent-to-Own Profiteers

What could be easier than renting-to-own? Get that big screen TV, leather couch or new washer/dryer combo immediately, with no credit check and affordable monthly payments, and before you know it you'll have it paid off in full. Or maybe not. These businesses collect $8 billion per year and are a key part of the "poverty industry," a sector of the economy that preys on low-income people and adds obstacles to the path to financial independence that wealthier people don't face.

But it doesn't have to be this way. Legislation signed into law by New York Governor David Paterson last week cracks down on rent-to-own businesses in that state, and sets a great example for the rest of the nation.

Under the new law, companies like industry leader Rent-A-Center, which has more than 3,000 stores spread across 50 states, D.C., and Puerto Rico, can not charge low-income New Yorkers any more than 2.25 times the value of the item they're renting. Companies also have a mandate to make contracts clearer, so customers actually understand that they're paying extra for the relative convenience of getting the item right away.

Here's how it can play out in real life: in a recent Rent-A-Center commercial, former NFL quarterback Troy Aikman and always-entertaining wrestlemaniac Hulk Hogan plugged a 52" Sony HDTV, available for "only $39.99 a week." The fine print at the bottom of the screen says that people who sign up for that "deal" will be responsible for paying the $39.99 for 104 weeks, for a grand total of $4,158.96. Yowza. Satisfaction is guaranteed — on the item, at least. If you don't like the terms of the contract, too bad.

The full price of that exact model TV, if you went and bought it on Amazon, is currently $1,498. If someone can't come up with the original cost, what's the likelihood he can afford to buy it almost three times over in two years' time? New York's law would limit the total cost of that TV to $3,370.50 — still a lot, but considerably less than rent-to-own vendors would like to charge. Tell your state leaders to follow New York's lead in regulating the rent-to-own industry.

Some people think they can simply rent, and get roped into the "-to-own" part of the equation. And if someone can't keep making payments, the item is repossessed (often after inappropriately aggressive collection measures) and all that money's gone.

Bishop Eric Figueroa, who runs a church in Brooklyn, told the New York Daily News that his congregation rented a large TV from Rent-A-Center to watch election results in 2008. "Even men of influence and means would have difficulty interpreting what the long-term consequences of rent-to-own were," Figueroa said of the confusing contract (here's a copy of the contract (pdf) used in Washington state). Problem is, men of influence and means don't have to work with exploitation industries like rent-to-own, payday lending and lotteries.

When the poverty industry contributes to the creation of an economic underclass, we all pay.

Photo credit: Steve Snodgrass