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Report: Consumer Protection
The Rent-to-Own Rip-off
The 2013-2015 biennial executive budget, proposed by Governor Walker, includes an exemption for the rent-to-own industry from Wisconsin’s consumer protection laws. Rent-to-own businesses are appliance and furniture retailers that arrange “lease agreements,” rather than typical installment or credit sales contracts. These leases are regulated as a form of credit because the consumer is buying a product over time and paying a very high premium over the product’s sale price. As such, rent-to-own businesses in Wisconsin currently are regulated under the Wisconsin Consumer Act, providing strong protections for consumers from a predatory industry. The rent-to-own industry has effectively dismantled similar strong consumer protections that apply to these installment contracts in most states and replaced them with industry-friendly laws. Wisconsin is one of four states that currently protect consumers from this special interest exemption. The executive budget proposal would add Wisconsin to the list of 46 states who have exempted this industry from strong consumer protections that apply to other credit sales, including disclosure of effective APRs, even though these sales are made at astronomic annual percentage rates.
In order to highlight why the rent-to-own industry should not be exempted from Wisconsin’s consumer protection laws, WISPIRG staff conducted a survey of five rent-to-own (RTO) stores in the Rockford, IL area in March 2013. We compared the cost of rent-to-own to the cost of buying the same or similar goods at major appliance and electronics retailers.
Here is what we found:
• The RTO stores that we surveyed charge an average effective APR of 221 percent, which we calculated since rent-to-own businesses in Illinois are not required to disclose their APRs to consumers.
• RTO stores charge effective APRs ranging from 138 percent to 370 percent for the appliances that we surveyed, including televisions, washers and dryers, refrigerators, oven ranges, and laptops.
• Purchasing items via rent-to-own at RTO stores costs 2-7 times as much as purchasing the same items at major appliance and electronics retailers.
• 100 percent of the RTO stores surveyed, and 100% of the products surveyed in those stores, charged effective APRs of over 100 percent -- that is, over five times prevailing credit card rates (less than 20 percent).
• "Cash prices" at RTO stores for outright purchase are in most cases 50%-100% above the price of these products at major appliance and electronics retailers such as Best Buy, Walmart, and Menards.
• Using a slightly above average cost 18% APR bank credit card, and financing their purchase over an equivalent period to a rent-to-own contract, or 18-24 months, consumers typically would pay less than half and sometimes almost a quarter of what they would pay by rentin¬¬g to own the same product.
• Rent-to-own items are often discontinued models. By offering obsolete items, RTO stores are able to avoid direct price comparisons with the retailer down the street, thereby allowing them to inflate the price without concern for fair market value.
• The RTO business model includes carrying used items, and our survey found in every instance the rent-to-own “cash price” for used items was higher than the price for a comparable new item at other retailers.
In addition to exempting the RTO industry from disclosing their effective APR, the executive budget would put into place additional protections for the industry, including capping awards for enforcing consumer protection laws against the industry. Insidiously, there also is a purported consumer provision which would “limit” the total cost to RTO to double the outright cash price for in-store purchase. Since the cash price is set by the store and is often double fair market value, this restriction is virtually meaningless. The industry should not be able to claim that this purported limit on total cost is pro-consumer. It actually hides the true finance charge because it uses artificially inflated “outright cash prices” rather than market prices.
Wisconsin lawmakers should reject any effort that exempts the rent-to-own industry from Wisconsin’s consumer protection laws. The legislature should also reject any special treatment or favors for the rent-to-own industry, such as hiding a major policy change serving a powerful special interest in the budget process.
Consumers should avoid rent-to-own contracts for any products, and instead either save their money and purchase the product outright at a much lower cost, or if necessary, purchase the product with a credit card, which will still be much cheaper than rent-to-own.
Tools & Resources
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25 organizations from Wisconsin comment on proposed rulemaking on payday, vehicle title, and certain high-cost installment loans
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