Rent-to-Own Industry Gets Hit by Critics As Regulations Loom

THE rent-to-own industry has come under attack by consumer advocates at a time when it faces the likelihood of federal regulation.

The 30-year-old RTO industry has grown to $3.9 billion in annual business. About 7,500 stores in the United States serve 3.6 million customers who acquire appliances and furniture by making weekly or monthly payments.

Last week the US Public Interest Research Group released a study entitled, ``Rent To Own = Ripping Them Off.'' The state-by-state survey concluded that consumers pay from two to five times as much for items through rent-to-own programs as they would at a department or discount store.

``Industries grow, as ours has, because they do things right, not because they do things wrong,'' counters Bill Keese, executive director of the Association of Progressive Rental Organizations. Austin-based APRO represents one-half of the nation's rent-to-own stores.

The solution to the ``problem'' of ``extremely expensive'' RTO prices, US PIRG says, is enactment of legislation sponsored by Rep. Henry Gonzales (D) of Texas and Sen. Howard Metzenbaum (D) of Ohio. This legislation would treat rent-to-own programs as installment sales, subject to usury ceilings in state laws.

For instance, those laws limit credit cards to an annual percentage rate of up to 23 percent. US PIRG says RTO stores charge effective annual percentage rates ranging from 35 to 396 percent, with 111 percent being the national average.

``This is a bad deal,'' says Mike Blizzard, a US PIRG consumer advocate in Austin who helped gather the survey information by posing as a prospective customer. ``I felt like I was being suckered.''

APRO favors a competing bill by Rep. Larry LaRocco (D) of Idaho. Similar to the industry-sponsored model legislation adopted by 35 states, ``The Rent-To-Own Reform Act of 1993'' would classify such transactions as rentals rather than sales. At least two federal court cases last year reached the same conclusion. Only Pennsylvania treats rent-to-own as a credit sale.

APRO president Wayne Chambers says RTO stores already make most of the more than 45 disclosures to consumers that would be required by Mr. LaRocco's bill. ``Our customers have all the information they need to make a decision,'' Mr. Keese says.

LaRocco's bill, however, would not require disclosure of annual percentage rates nor the setting of prices at fair-market value, as in the Gonzales-Metzenbaum bill.

APRO says there is no interest rate because there is no loan, no down payment, no credit check, and no obligation to keep paying if the consumer no longer wants the rented item. Some 79 percent return the merchandise within four months.

APRO acknowledges that those who do wind up owning the item will have paid several times more in rental fees than they would have paid in cash. But RTO stores also have higher costs. Delivery, set up, and service are free. Returned items must be reconditioned before they are rented again. ``Our customers know that they are paying more because they are getting more: convenience, flexibility, no debt, no hassle,'' Keese says.

RTO stores also take a risk. ``We lose 12 out of 100 products, stolen by dishonest customers,'' says Walter Gates, chairman of the Rent-A-Center chain.

``Our study didn't address that issue,'' Mr. Blizzard says.