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Home / Focus / Econ. Dev. & Business April 2009 / Renting could lead to owning, but at a high price

Renting could lead to owning, but at a high price

This Rent-A-Tire store in south Phoenix offers new wheels and tires with rent-to-own agreements. It also rents used tires, returned by customers who want a new set.

As the economy continues to slide and credit tightens, some people are coming up with a different payment plan for buying TVs, furniture and even tires — rent-to-own.
But the rent-to-own system has its own pitfalls, consumer advocates say. Payments leading to ownership can amount to double the sticker price of an item and even end up amounting to more than interest paid on a loan or credit cards.
With 3,000 stores nationwide, Rent-A-Center (RAC) dominates more than one-third of the rent-to-own market. Business hasn’t exactly boomed in the rough economy, a company spokesman says. But he adds: “We are holding our own.”
On the plus side, the company is attracting a slightly more upscale clientele — those on the high end of the RAC customer income-range.
“As a general rule, our household income is usually $20,000 to $50,000 a year,” RAC’s Xavier Dominicis said in a phone interview from the company’s headquarters in Plano, Texas.
The higher-end customers are looking at rent-to-own, “probably because they’re affected by tighter credit, and they’re looking for a solution,” Dominicis says.
On the minus side, Dominicis says, “we do have a little drop off from our existing customer base.”
That base — at the lower income scale — has been hit hard by job losses, he says. They might have to return merchandise, since they are out of work and can no longer afford the payments.
With rent-to-own, customers must prove employment. They agree to weekly or monthly rental payments. If they make a set number of payments, they own the item. Otherwise, they can return it and stop making payments.
$$$But$$$ if the goal is ownership, consumers are not getting a good deal, says Phyllis Rowe of the Arizona Consumers Council.
“We’ve done a couple of studies and shown how egregious their fees are,” Rowe says.
In a 2007 survey, Rowe says, an $849 television proved to cost more than $2,000 through a rent-to-own agreement.
A reporter, on a recent visit to a south Phoenix Rent-A-Center, saw rows of flat-screen TVs offered through rent-to-own agreements. With each TV was a card stating weekly payments in bold — about $43 a week for a 50-inch flat-screen television. In smaller print, however, the card did provide the total cost of the approximately $2,000 television after 91 weekly payments. It was more than $4,000.
“They prey on poor people,” Rowe says, “because these are the people that don’t have the resources to pay for the whole item.”
But Dominicis says Rent-A-Center serves people who generally have no access to credit. And not every purchase is a flat-screen television.
“Say your refrigerator breaks today. You’re on a fixed income and you don’t have the credit you need to buy a refrigerator,” he says.
With a rental center, that refrigerator can be delivered that same day.
In addition, he says, if customers come up with the cash to buy the item in the first 90 days of the rental agreement, they pay the lower sticker price. Few people actually keep the item through the final payment, Dominicis adds. It might just meet a short-term need, like renting a refrigerator until the old one is repaired.
Rowe admits rent-to-own agreements can help people in a fix.
“It does perform a service,” she says.
If somebody has to have a washing machine, rent-to-own makes it available. But credit at Sears would be cheaper, she adds.
Dominicis says if customers can’t make the payments, for whatever reason, they can simply return the item. It won’t hurt their credit.
“All this stuff comes without the risk of additional debt,” he says.
But rental centers will go after customers who miss a payment or two, Rowe says.
“They’re very good at repossessing stuff,” she says.
They’ll also go after money owed on missed payments.
$$$Rosario$$$ Ramos Gonzalez is a case in point. She sued a Rent-A-Center on West Camelback Road in Phoenix in 2005.
The complaint filed in Maricopa County Superior Court said Rent-A-Center harassed Gonzalez at work for missed payments. That included threatening phone calls and visits from RAC collectors.
In one visit, the complaint said, a Rent-A-Center employee came to Gonzalez’s work and told her “RAC would have her arrested. She also called Ms. Gonzalez a ‘thief.’”
A few days later, two collectors showed up. One of them wore a holstered gun, the complaint said.
“The man threatened to arrest Ms. Gonzalez in front of all her co-workers if she didn’t make a payment,” the complaint said. “He said that he might have to use force.”
Ms. Gonzalez sued for invasion of privacy and infliction of emotional distress. The complaint also said Rent-A-Center had misrepresented an agreement on a TV.
In its own filing, Rent-A-Center denied harassing Gonzalez and said the agreement was spelled out in the contract. The case was settled, but the terms remain sealed. Gonzalez signed a non-disclosure agreement, says her attorney, Michelle Kunzman.
In its 2007 annual report, the publicly traded Rent-A-Center said its many store locations makes it easier to keep tabs on delinquent customers.
“The ability to timely and personally contact customers through our local field personnel is critical to our ability to collect payments or regain possession of rented merchandise,” the report said.
The Better Business Bureau gave Phoenix-area Rent-A-Centers mixed ratings. More than eight stores received an “F.” But seven were rated “A,” according to the Phoenix BBB Web site.
The ratings included customer-complaint history.
$$$In$$$ a few states, rent-to-own agreements are treated no differently than loans. They are classified as credit and subject to usury laws. And they soon could be subject to federal law, says Ed Mierzwinski, Washington lobbyist for Public Interest Research Group, a consumer advocacy group.
Sen. Richard Durbin, D-Ill., has introduced legislation to cap consumer credit at 36 percent interest. This would apply where rent-to-own agreements are regarded as loans.
That excludes Arizona, Mierzwinski says. He adds, though: “Even in the states that claim it is not credit, perhaps there would be litigation if the Durbin bill passes.”
That is, a successful lawsuit could classify rent-to-own agreements as loans in all states.
For now, consumers can still rent tires by the week from Rent-A-Tire. A call to a store on south Central Avenue in Phoenix referred a reporter to the company’s headquarters in Van Nuys, Calif.
An executive says the privately held company — known as Rent-A-Wheel in some states — does not grant interviews.
A rental-industry insider — who did not want his name used — says the rental agreement for tires runs six months. After that, the customer owns them outright. If they’re returned before then, they can be rented again as used tires — a big part of the business.
With wheels, it’s a 52-week rent-to-own agreement.
“If you go through all 52 weeks, the product can be expensive,” the insider says.
But many customers rent fancy wheels just for special occasions, including proms, he says. Others like the flexibility of renting.
That way they’re not tied down to any one set of wheels.
“They’ll change them out for the latest model,” the insider says.
With 3,000 stores nationwide, Rent-A-Center (RAC) dominates more than one-third of the rent-to-own market. Business hasn’t exactly boomed in the rough economy, a company spokesman says. But he adds: “We are holding our own.”
On the plus side, the company is attracting a slightly more upscale clientele — those on the high end of the RAC customer income-range.
“As a general rule, our household income is usually $20,000 to $50,000 a year,” RAC’s Xavier Dominicis said in a phone interview from the company’s headquarters in Plano, Texas.
The higher-end customers are looking at rent-to-own, “probably because they’re affected by tighter credit, and they’re looking for a solution,” Dominicis says.
On the minus side, Dominicis says, “we do have a little drop off from our existing customer base.”
That base — at the lower income scale — has been hit hard by job losses, he says. They might have to return merchandise, since they are out of work and can no longer afford the payments.
With rent-to-own, customers must prove employment. They agree to weekly or monthly rental payments. If they make a set number of payments, they own the item. Otherwise, they can return it and stop making payments.

But if the goal is ownership, consumers are not getting a good deal, says Phyllis Rowe of the Arizona Consumers Council.
“We’ve done a couple of studies and shown how egregious their fees are,” Rowe says.
In a 2007 survey, Rowe says, an $849 television proved to cost more than $2,000 through a rent-to-own agreement.
A reporter, on a recent visit to a south Phoenix Rent-A-Center, saw rows of flat-screen TVs offered through rent-to-own agreements. With each TV was a card stating weekly payments in bold — about $43 a week for a 50-inch flat-screen television. In smaller print, however, the card did provide the total cost of the approximately $2,000 television after 91 weekly payments. It was more than $4,000.
“They prey on poor people,” Rowe says, “because these are the people that don’t have the resources to pay for the whole item.”
But Dominicis says Rent-A-Center serves people who generally have no access to credit. And not every purchase is a flat-screen television.
“Say your refrigerator breaks today. You’re on a fixed income and you don’t have the credit you need to buy a refrigerator,” he says.
With a rental center, that refrigerator can be delivered that same day.
In addition, he says, if customers come up with the cash to buy the item in the first 90 days of the rental agreement, they pay the lower sticker price. Few people actually keep the item through the final payment, Dominicis adds. It might just meet a short-term need, like renting a refrigerator until the old one is repaired.
Rowe admits rent-to-own agreements can help people in a fix.
“It does perform a service,” she says.
If somebody has to have a washing machine, rent-to-own makes it available. But credit at Sears would be cheaper, she adds.
Dominicis says if customers can’t make the payments, for whatever reason, they can simply return the item. It won’t hurt their credit.
“All this stuff comes without the risk of additional debt,” he says.
But rental centers will go after customers who miss a payment or two, Rowe says.
“They’re very good at repossessing stuff,” she says.
They’ll also go after money owed on missed payments.

Rosario Ramos Gonzalez is a case in point. She sued a Rent-A-Center on West Camelback Road in Phoenix in 2005.
The complaint filed in Maricopa County Superior Court said Rent-A-Center harassed Gonzalez at work for missed payments. That included threatening phone calls and visits from RAC collectors.
In one visit, the complaint said, a Rent-A-Center employee came to Gonzalez’s work and told her “RAC would have her arrested. She also called Ms. Gonzalez a ‘thief.’”
A few days later, two collectors showed up. One of them wore a holstered gun, the complaint said.
“The man threatened to arrest Ms. Gonzalez in front of all her co-workers if she didn’t make a payment,” the complaint said. “He said that he might have to use force.”
Ms. Gonzalez sued for invasion of privacy and infliction of emotional distress. The complaint also said Rent-A-Center had misrepresented an agreement on a TV.
In its own filing, Rent-A-Center denied harassing Gonzalez and said the agreement was spelled out in the contract. The case was settled, but the terms remain sealed. Gonzalez signed a non-disclosure agreement, says her attorney, Michelle Kunzman.
In its 2007 annual report, the publicly traded Rent-A-Center said its many store locations makes it easier to keep tabs on delinquent customers.
“The ability to timely and personally contact customers through our local field personnel is critical to our ability to collect payments or regain possession of rented merchandise,” the report said.
The Better Business Bureau gave Phoenix-area Rent-A-Centers mixed ratings. More than eight stores received an “F.” But seven were rated “A,” according to the Phoenix BBB Web site.
The ratings included customer-complaint history.

In few states, rent-to-own agreements are treated no differently than loans. They are classified as credit and subject to usury laws. And they soon could be subject to federal law, says Ed Mierzwinski, Washington lobbyist for Public Interest Research Group, a consumer advocacy group.
Sen. Richard Durbin, D-Ill., has introduced legislation to cap consumer credit at 36 percent interest. This would apply where rent-to-own agreements are regarded as loans.
That excludes Arizona, Mierzwinski says. He adds, though: “Even in the states that claim it is not credit, perhaps there would be litigation if the Durbin bill passes.”
That is, a successful lawsuit could classify rent-to-own agreements as loans in all states.
For now, consumers can still rent tires by the week from Rent-A-Tire. A call to a store on south Central Avenue in Phoenix referred a reporter to the company’s headquarters in Van Nuys, Calif.
An executive says the privately held company — known as Rent-A-Wheel in some states — does not grant interviews.
A rental-industry insider — who did not want his name used — says the rental agreement for tires runs six months. After that, the customer owns them outright. If they’re returned before then, they can be rented again as used tires — a big part of the business.
With wheels, it’s a 52-week rent-to-own agreement.
“If you go through all 52 weeks, the product can be expensive,” the insider says.
But many customers rent fancy wheels just for special occasions, including proms, he says. Others like the flexibility of renting. That way they’re not tied down to any one set of wheels.
“They’ll change them out for the latest model,” the insider says.?

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