Rent-to-own bilks buyer, group says

March 04, 1994|By Joel Obermayer | Joel Obermayer,Sun Staff Writer

Why would anyone pay $1,600 for a refrigerator that's available for $530?

Thousands of unsuspecting customers are being gouged by an industry of rent-to-own stores that is largely unregulated and actively targets lower-income people, the consumer organization MaryPIRG said yesterday.

In releasing the results of a study of 125 rent-to-own stores nationwide, including some in Maryland, MaryPIRG said the businesses routinely mark up prices more than 100 percent.

Rent-to-own stores carry everything from appliances and electronics to furniture and jewelry. Customers may elect to rent a product for a weekly fee, but can buy it if they make those payments for dozens of weeks, typically 60 to 78 weeks.

"They are charging interest rates that would make a loan shark blush," said Carl Perry, a field organizer for MaryPIRG.

"RTO [rent to own] ought to stand for,'Rip Them Off,' " Mr Perry said.

Maryland Public Interest Research Group, or MaryPIRG, is the state affiliate of the national public interest group U.S. PIRG.

An industry spokesman disagreed with the report's conclusions, saying that most customers are poor credit risks and hold on to items for a short period only. He added that the markups make up for additional services that rent-to-own shops provide.

A spot check yesterday by The Sun indicated sharp differences in prices of items between rent-to-own stores and other retailers.

A rent-to-own store in Baltimore County, for example, advertised an RCA four-head VCR at $12.99 a week for 78 weeks -- a total cost of $1,013.22. That same VCR was available at Circuit City for $347.97.

Under Maryland law, retailers can charge a maximum of 24 percent interest on financed purchases. When finance charges are factored in, they can boost the total cost by 50 percent. At rent-to-own stores, the same finance charges can boost the total purchase price by 191 percent.

Maryland Attorney General J. Joseph Curran Jr. said he hoped the report would help educate consumers and would increase the support for a pair of bills in Congress that would regulate the rent-to-own industry.

"The more consumers know that it is not a good deal, the less they will buy," he said.

Bill Keese, executive director of the Association of Progressive Rental Organizations, an Austin, Texas, trade group that represents 3,600 rent-to-own stores nationwide, said the prices at rent-to-own stores reflect higher costs than other retailers have.

"The average customer here rents an item for three or four months," he said. "And there is more risk because a substantial part of our customer base has no credit or bad credit."

Mr. Keese said that rent-to-own stores provide free delivery, full maintenance and free loaners when their products break down for any reason.

"You don't have repeat customers if you gouge people," he said. "This is a misnomer from consumer groups that [say] we are hoodwinking customers."

Maryland law requires rent-to-own stores to disclose total purchase prices and provide a 15-day grace period when customers miss payments.

But Attorney General Curran said those rules fail to provide adequate protection, mainly because the stores are considered rental shops rather than retail stores and thus are not subject to many regulations applying to retail stores.

"They slip through the cracks because they say they are renting to customers even though the customers are there to own," he said.

Both the attorney general and MaryPIRG endorsed two bills in Congress, one sponsored by Texas Democratic Rep. Henry Gonzalez and the other by Ohio Democratic Sen. Howard Metzenbaum.

If passed, each bill would make rent-to-own stores operate under the same state laws as retail stores.

In Maryland, the stores would likely have to reduce their rates to get their effective financing interest rate below 24 percent.

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