$3.6 billion rent-to-own industry charges too much, House panel chairman says

April 01, 1993|By John B. O'Donnell | John B. O'Donnell,Washington Bureau

WASHINGTON -- At the beginning of January 1988, Irene Muldrow went to a store and "bought" a couch and chair. A year later, she "bought" a dining table and chairs.

Yesterday, Ms. Muldrow, a 55-year-old Minneapolis woman, told a congressional committee that she has paid more than $2,500 for merchandise worth $1,000 and still doesn't "have anything that says I own the furniture."

Ms. Muldrow obtained the furniture from one of the country's estimated 7,500 "rent-to-own" stores, a business where customers can rent furniture, appliances, televisions, VCRs and other items for a weekly or monthly fee with an option to buy.

The $3.6 billion-a-year industry is not regulated by federal truth-in-lending laws because it is considered a rental business. Supporters of the industry contend that it provides poor people who have no credit a way to make purchases with low installment payments, and that it also serves people "in transition" who have moved and have a temporary need for certain merchandise.

But Rep. Henry B. Gonzalez, chairman of the House Banking, Finance and Urban Affairs Committee, charged that the "rent-to-own" industry "takes advantage of the low-income consumer whose primary objective is to purchase the rent-to-own product."

Claiming that rent-to-own stores routinely charge the equivalent of up to 300 percent interest, the Texas Democrat said: "This is an industry that clearly markets to the more needy and unsophisticated consumer. The result is that those who can least afford to pay excessive prices for goods end up doing so through rent-to-own."

A number of witnesses, including William Leibovici, chief of Maryland's Consumer Protection Division, urged Congress to require full disclosure of the terms of rent-to-own contracts, including the effective annual interest rate and the price for which the item could be purchased for cash at retail.

Maryland officials do not know how many rent-to-own stores operate in the state, though the biggest chain, Rent-A-Center, has stores in metropolitan Baltimore, including Glen Burnie and Dundalk.

Mr. Leibovici, the Maryland consumer protection chief, said there have been few complaints to his office about rent-to-own stores, but added: "It's difficult to complain about things you don't know about."

Ed Mierzwinski of the Public Interest Research Group said his organization's Maryland affiliate surveyed seven rent-to-own stores in the Maryland suburbs of Washington last month and found the equivalent of interest that ranged from 55 percent to 139 percent. The highest rate involved a Landover store that offers a new 19-inch color television for $499 in cash or for 91 weekly payments of $14.64 -- a total of $1,332.24.

Ms. Muldrow, who works as a bus aide for handicapped children, told the committee that she had a department store charge account in 1988 but decided to buy from the rent-to-own firm because she thought the department store prices were higher.

She signed contracts but said, "I don't read that well."

She added: "They don't read you the contract and don't explain it that well." She said she did not understand the contract until a Legal Aid lawyer explained it to her much later.

The contract for the couch and chair provided for 68 weekly payments at $19.99 and a "balloon" payment at the end of $173.91 -- more than $1,500. The dining table and chairs were $15.99 a week for 64 weeks with another $139 at the end -- more than $1,100. And, she added, she got a used dining table and used chairs when she expected new furniture.

Bill Keese, a rent-to-own spokesman, said that 80 percent of the industry is made up of "mom and pop" operations "with fewer than five stores," that only 22.3 percent of industry customers opt to own a product and that operating costs are higher than those for retail operations and leave "annual pre-tax profits of 8.6 percent."

"Critics of our industry claim that we are charging our customers interest," he said. "Interest is a charge for borrowed money. Our customers are not borrowing money or assuming any debt. They are renting with no obligation beyond the current rental payment."

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