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Permanent Link: http://ufdc.ufl.edu/IR00002636/00001
 Material Information
Title: Rent-To-Own
Physical Description: Fact sheet
Creator: Harrison, Mary N.
Publisher: University of Florida Cooperative Extension Service, Institute of Food and Agriculture Sciences, EDIS
Place of Publication: Gainesville, Fla.
Publication Date: 1999
 Notes
Acquisition: Collected for University of Florida's Institutional Repository by the UFIR Self-Submittal tool. Submitted by Melanie Mercer.
Publication Status: Published
General Note: "Publication date: July 1999. First published: January 1994."
General Note: "FCS 5041"
 Record Information
Source Institution: University of Florida Institutional Repository
Holding Location: University of Florida
Rights Management: All rights reserved by the submitter.
System ID: IR00002636:00001


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FCS5041 TheInstituteofFoodandAgriculturalSciencesisanequalopportunity/affirmativeactionemployerauthorizedtoprovideresearch,educational informationandotherservicesonlytoindividualsandinstitutionsthatfunctionwithoutregardtorace,color,sex,age,handicap,ornational origin.Forinformationonobtainingotherextensionpublications,contactyourcountyCooperativeExtensionServiceoffice. FloridaCooperativeExtensionService/InstituteofFoodandAgriculturalSciences/UniversityofFlorida/ChristineTaylorWaddill,DeanRent-To-Own1 MaryN.Harrison2"NoCreditHassle!" "NoLong-TermCommitment!" "NoDownPayment" "FreeServiceinYourHome!" Rent-to-own(RTO)businessesareusingsuchads toattractcustomers.ThereareahostoflocalRTO establishmentsandafewnationwidefranchises,and thenumberisincreasingrapidly. RTOsareinregulatorylimbobecausetheir uniquemarketingapproachesdonotfitintothe traditionalmerchandisingmethods.Aretheyretailers whoextendcredittohighriskborrowers,leasing agenciesofferinglongtermleases,oraretheyrental agencies? AlthoughRTOmerchandisinghasonlyrecently gainedconsiderableattention,itisnotanewconcept. ItoriginatedwithanEnglishpianomanufacturerwho wantedtoincreasehisbusinessbymakingiteasierfor customerstobuypianos.Hecreatedthe``hirepurchase''marketingconceptin1846.Thisconcept hasbeenusedforyearsbymusiccompaniesin cooperationwithbandteachersenablingbeginning studentstorenttheirinstruments.Ifastudentlost interesttherentedinstrumentwasreturnedandthe paymentsceased.Ifthestudentcontinuedinthe bandandkeptupthepayments,eventuallythe instrumentbecamehis. The``hire-purchase''orRTOmerchandising methodhasnowbeenextendedtothesaleofawide varietyofmerchandiseincludingthingssuchas furniture,appliances,jewelry,electronicsandeven officeequipment.TheuseoftheRTOconceptto sellawidervarietyofproductshasresultedinthe developmentofanewtypeofretailerwhotargetsa differentkindofcustomer,usingadifferentsales appealandpossiblywithadifferentmerchandising objective.RTOshavegeneratedconsumer complaintsregardingtheamountandclarityof rental/purchaseinformation,highprices,severe penaltiesforlatepayments,andrepossessiondebt collectionpractices.Someconsumergroupswant morestateorfederalregulation.RTOscontendthey serveagroupofcustomersrejectedbyothersellers andtheiractionsarereasonableandessentialfor economicsurvival.REGULATORYCONCERNSCriticssayrental-purchaseagreementsaresimply creditsalesdisguisedasrentalcontractsandshould beregulatedascredittransactions.Theycontend rentalpurchasecontractscontainaterminationclause thatpermitstheconsumertoterminatethe transactionatanytime.Theyalsosayacustomer's optiontotryouttheproductandlaterreturnitis functionallynodifferentthanacreditsaleinwhich thebuyerexercisesa``satisfactionoryourmoney back''guarantee.Essentiallytheonlydifferenceis thattheRTOcustomerreceivesnorefundwhereas thecreditcustomerdoes. 1.ThisdocumentisFactSheetFCS5041,aseriesoftheDepartmentofFamily,YouthandCommunitySciences,FloridaCooperativeExtension Service,InstituteofFoodandAgriculturalSciences,UniversityofFlorida.Publicationdate:July1999.Firstpublished:January1994. Reviewed:July1999.PleasevisittheEDISWebsiteat http://edisifas.ufl.edu 2.MaryN.Harrison,professor,ConsumerEducation,DepartmentofFamily,YouthandCommunitySciences,CooperativeExtensionService, InstituteofFoodandAgriculturalSciences,UniversityofFlorida,GainesvilleFL32611.

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Rent-To-Own Page2TheRTOindustrydoesnotrecognizerental paymentsasequivalenttoinstallmentpayments.It sayscustomersdonotpayinterestbecausethereisno debt.TheindustryrejectsargumentsthatRTO transactionsareaformofcredit.Itagreesthatthe RTOtransactionsaremorecostlytoconsumersbut saysthereasonisbecauseofthehighercostsof servicesprovidedwhicharenotavailablethrough creditpurchases.MostRTOdealersofferfree delivery,nocreditchecks,freerepairsanda replacementorloanerwhiletheproductisbeing repaired.RTOssayyoucannotbuyaservicecontract fromanyretailerwhowillcomeouttoaconsumer's homeandfixtheproductorreplaceit.RTOdealers mustalsoabsorbcostssuchasopportunitycosts, depreciation,andthegambleofrentingtohighrisk consumers. TheRTOindustryclaimstomarketoverten percentofthemajorappliancessoldintheU.S.Yet, itremainsexemptfromnearlyeverystatuteregulating otherretailersandfinanciersofconsumergoods. Sincetheterms``lease''and``rent''aredefined differentlythan``credit,''traditionalcreditlaws,usury ceilingsandtheFairCreditBillingActhavenotbeen appliedtoRTOtransactions.RTOtransactionsare notregulatedbytheConsumerLeasingActof1976 becausethisActappliesonlytoleasesthatlastlonger thanfourmonths.RTOscontendtheyrentmonthly, renewedeachmonth.Also,theFederalFairDebt CollectionPracticesActdoesnotapplytorental dealersattemptingtorecovertheirownmerchandise ortocollecttheirowndebts.Thestatuteappliesonly tothird-partydebtcollectionagencies. Statelawsandregulationsarenotconsistentand arevaried.FloridalawrequiresRTOdealerstostate their``cashprice''aswellastheweeklyormonthly rentalfee.However,thetotalpriceofrent-to-own purchasingisnotrequired.DISCLOSURECONCERNSManyconsumeradvocatesfeelRTOcustomersdo nothavetheinformationtheyneedavailableina consistent,easytounderstandform.Theyarguesuch informationisneededtodopricecomparisonsandto becomeawareofthetotalcostsofpotential purchases.UNIQUENESSOFRTOSYSTEMToday'sRTOtransactionsinvolvearental agreementwherepaymentsaremadeatregular intervals.Mostalsospecifythatafteracertain numberofpaymentsaremadethemerchandise belongstothecustomer.Aslongaspaymentsare made,themerchandiseremainswiththeconsumer. Ifpaymentsstop,theagreementisconsidered cancelledandmerchandisemustbereturnedingood condition.Thistypeoftransactionisuniquebecause itcombinesfeaturesofrenting,leasing,andbuying. Theconsumerhasnoequityinthemerchandiseuntil allpaymentsunderthepurchaseagreementhavebeen made. Pricesareusuallyquotedindollarsperweekor month.Thesesoundlowbecausetheydonotreflect thetotalamountthatmustbepaidbeforethe merchandisebecomesthepropertyofthecustomer. Thecostisusuallymuchmorethanthepriceofthe samemerchandisefromanothertypeofretailer.CUSTOMERSMostRTOcustomersfallinthelow-incomerange sotheprobabilityoftheirnotbeingabletomake paymentsontimeisratherhigh.Unlessrequiredby statelaw,RTOsgenerallyprovidenograceperiod andthecustomerbuildsnoequityinrented merchandise.Iftherentermissesapayment,the merchandisemustbereturnedandthemoneyalready paidisjeopardized. MostRTOsemphasizetheir``nocreditcheck''to attractcustomerswhoeitherdonothavecreditor havecreditproblems.Thesearesociety'smost vulnerableconsumers.Theyareusuallylow-income, withtheheadsofhouseholdsinthe18-34agerange. Threeofeachfourarewomen.Mosthavelimited opportunitytopurchaseinthetraditionalmannerof cashretailandhavelimitedaccesstocreditor savings.GROWTHOFRTOsWhytherapidgrowthofRTOs?Thereappearto betwomajorreasons.First,loanstomarginalcredit usersmaynotbeapprovedbybanks,finance

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Rent-To-Own Page3companiesorotherfinancialinstitutions.Secondly, toomanydebts.Itisestimatedthataboutone-third oftheadultpopulationnowfacescreditproblems. Thus,RTOsbecomethemosteasilyaccessible methodofobtainingnewmerchandise.PROBLEMAREASMostconsumercomplaintsormerchant/consumer disagreementsrevolvearoundthefollowingconcerns. TotalcostofRTOtransactions. Manyconsumers complainthatthetotalcostofRTOpurchases werefrom100to300percentmorethanthecost ofcomparableproductssoldbyothermethods. Reinstatementrights. Whenalatepaymentora missedpaymentresultsinthelossofmerchandise whichisalmostpaidoff,hardfeelingsarelikely. SomeRTOdealerswillassessapenaltyand reinstatetheagreement.Inotherinstancesthe customerloseshis/hertotalinvestment. Usedgoods. Manyconsumershavecomplained theyweresupposedtoreceiveanewproductbut receivedausedoneinstead. Service. Servicingtheproductatnocostisabig sellingfeatureofRTO,howeveramajorareaof complaintsrelatetodelaysencounteredwhen tryingtogetappliancesrepaired.Somepeople complainedaboutreceivingappliancesthatwere notoperatingproperly.Othersreceivedloaners thatwerenotsatisfactoryorwereoflower quality. RTOsalsohaveexperiencedfrustrations.Even thoughonlyabouttwopercentoftheircustomersskip orstealthemerchandise(removerentedmerchandise withoutnotifyingthecompany)thesedorepresenta loss.WHYSHOPWITHRTOs?Whenquestionedaboutwhytheyshoppedwith RTOcompaniescustomersgavefourreasons: 1.Togettheitem``rightaway.'' 2.Nocreditcheckisrequired. 3.Weredeniedcreditatotherplaces,orcreditis overextended. 4.Thoughtitwasaneighborhoodbusinessbecause itwaslocatedintheneighborhood. WhensurveyedregardingtheiropinionsofRTO dealers,onegroupofcustomersreportedtheywere awarethatRTOcostswerehigher.Morethantwoof eachfivesaidRTOwas``OK,butnotgreat.''About onethirdwerenotsatisfiedwiththeRTOprograms (Swagler&Wheeler,1989).AVAILABILITYInsomelocationssuchascollegetownsandareas nearlargemedicalcenters,acceptablefurnished residencesforshorttermoccupancymaybescarceor unavailable.Inthesesituationsitmaybemore advantageoustorentthantobuyfurnitureand/or appliancesfortheshortperioditisneeded.Most locationshavefewplacestorentfurnitureand appliances.Also,theconditionoftherentalfurniture maynotbeverygood.RTOcompaniesusuallyoffer achoiceofneworminimumwearusedfurnitureand appliances.Thus,theycanfulfilltheneedforthose whowishtorentfurnitureforashorttimeanddonot considerthistobeamethodofpurchasing.RTOCAUTIONSTherearecertainprecautionsthatanyconsumer shouldconsiderbeforebuyingfromarent-to-own (RTO)retailer. ThetotalcostofownershipthroughRTOshould becomparedwiththecostofmerchandisesold outright.Trytolocateconventionalcredit. Considerlay-awayplans.Or,buyused merchandisefromaretailer,garagesale, classifiedadorathriftshop.RTOisavery costlymethodofownership. RealizethatalthoughRTOdealersdonotuse creditreportingagencies,theydoobtainand checkinformationaboutyou.Theywillaskfor informationaboutyouremployment,suchas,who youworkfor,howlong,income,andlocation. Thisinformationwillbechecked.Also,dealers willaskforthenameandaddressofseveral relativesandfriends.(Thecompanywillhave enoughinformationtolocateyou.) Makesureanycontractyouareconsidering signingcontainsalloftheimportantfinancial information.Thisincludesthingssuchascash sellingpriceofthemerchandise;ifitisnewor

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Rent-To-Own Page4used;theamountandtimingofrentalpayments; alistofandtheamountofanyothercharges, suchasdeposits,deliveryorreinstatement charges,latefeesandfeestobepaidattheend ofthecontractbeforeownership;andthetotal costoftheagreement. Beawarethatyouwillnotownthemerchandise untilthetotalamountonthecontractispaid. Realizethatalthoughyouaremakingpayments, youarenotbuildinganyownershipinthe merchandise,andyouhavenoequityinit. Learnwhatwillhappenifyourpaymentsarelate andthemerchandiseisrepossessed.Ifthereis nograceperiod,whatwillhappenifapaymentin late? Besurethecontractcarriesanaccurate descriptionofthemerchandiseandifitisnewor used.Donotacceptsubstitutemerchandisewith thepromisethatitwillbereplacedlater. Findoutwhopaysforrepairs.Also,findoutif youwillreceivealoaner,orifpaymentstops whiletheitemisbeingrepaired. Makesurethecontractdescribesconditions underwhichyoumayendtherentalpurchase agreement.Aretheirpenaltiesforcancellingthe agreement? Findoutifthereisanearlypurchaseoption whereyoumaybuythemerchandisewithout waitinguntiltheendofthecontract. Findoutifyourpaymentrecordswillbereported toacreditreportingagency(creditbureau). Beforesigning,makesureyouunderstand everythinginthecontract.Askquestionsand,if needed,eithertakeacopyofthecontractto someonewhocanhelpyoutounderstanditor bringthispersonwithyou. Donotsignacontractwithblanks.Eithermark throughthemorhavethemfilledin.Getacopy ofwhatyousignatthetimethatyousignit. Ifyoudonotknowthereputationofthecompany withwhomyouwillbedealing,callyourlocal BetterBusinessBureau,ChamberofCommerce orConsumerProtectionAgency.Findouthow longthecompanyhasbeeninbusinessandif thereareunresolvedcomplaintsagainstthe company. Comparisonshopbetweendifferenttypesellersof themerchandiseyouareconsidering.IfaRTO companyisyourchoice,comparisonshopmore thanonecompanyiftherearemoreinyourarea.CONCLUSIONThereareadvantagesanddisadvantagestorentto-owncompanies.Themostimportantquestionis whethertheadvantagesoutweighthedisadvantages. Consumersneedtomakeinformeddecisions,not decisionsmadeoutofapathyorlackof understanding.Consumersdohavebuyingoptions.REFERENCESAmericanAssociationofRetiredPersons,National AssociationofAttorneysGeneral, Rentingto Own:ConvenienceorJustPlainCon ,Fall1990. Cantrell,SandraJ., Rent-to-Own:AnAlternativeto Credit? UniversityofGeorgia,Athens. CouncilofBetterBusinessBureaus, Rent-to-OwnCan BeCostly,August1990.