Should Rent-to-Own Stores Reveal Fees Charged?
There goes your transparency. In Wisconsin, Governor Scott Walker has added provisions that exempt rent-to-own companies from that state’s consumer protection act requiring lenders to disclose interest rates, according to The Associated Press.
Companies such as Rent-A-Center argue that consumer protection laws should not apply because buyers are paying higher prices for goods factoring in services such as delivery, opt-out clauses and pick-up. The companies say they are not charging interest.
"You’re paying for the ability to take something home. You’re paying for the access, you’re paying for the embedded value. Therein lies your price. There is no interest rate. There is no credit," Xavier Dominicis, a spokesperson for Rent-A-Center, told the AP.
Mr. Walker has gotten pushback from within his own party on the provision. Sen. Glenn Grothman, a Republican representing West Bend, told the AP, "I’m in general not in favor of policy in the budget. I’m particularly concerned when the policy seems designed to help what I would describe as a sleazy industry that preys on the poor by giving them contracts that no mathematically literate person would sign."
Mary Jacobson, director of St. Lawrence Community Services, a part of Catholic Charities USA, told WXOW that consumers who rent-to-own can often pay up to double what a product is worth.
All but three states, New Jersey, North Carolina and Wisconsin, have separate laws that govern the practices of rent-to-own businesses.
Discussion Questions
Do you see rent-to-own businesses growing in the years ahead? Should rent-to-own companies have to provide consumers with detail on the actual cost of goods rented and the total to be paid before they own the item?
When I lease a car I sure want to know the effective interest rate, what the buyout will be and so on. It is sad that some people are in such a state that they don’t even ask about interest and often don’t even explore what their other options are. And they DO end up paying many multiples of what the item is worth.
This Xavier Dominicis talks about a mystery called “embedded value.” I’ve got to try that, apparently it works. And you pay for the opportunity take a product home…and the other option would be what, sleep in the store? Come on, just be honest. Generally you have people over a barrel just like the pay day loan people have.
If I might swing philosophical for a moment…
I’m fighting a ‘transparency’ battle right now. My belief is you get back what you put out. That just seems to be the way the energy of the universe works. When you put out obtuse information, you get it back. When you try to hide key information, information will be hidden from you. I recognize that there are certain secret things like the KFC chicken recipe and the formula for coke…but by and large, openness and trust begets openness and trust. In both the short and long run, that’s a better deal.
Rent-to-own companies should be required to be fully disclose the price of their consumer transactions. These stores primarily serve lower income families, the same families that are most easily taken advantage of because they do not have access to mainstream credit. This is not going to put these stores out of business, but it will give consumers needed information before they make a purchase decision.
Transparency in consumer financial transactions is a pet peeve of mine. I’m the guy who reads the unsolicited credit card fine print to find out how they were trying to copulate with me. I don’t even mind signing all the disclosures (until it comes to mortgage closings—which drive me nuts.)
But this actually is a different business. If financing furniture or electronics is like owning a bank, then “rent-to-own” is like owning a pawn shop. The risks are markedly different and the costs need to reflect that.
As with other business models, however, these folks shoot themselves in the foot with the language they use to attract consumers. Calling it “rent-to-own” implies that you are buying the item. If they called it “pay rent until the item no longer has any retail value and then you can just keep it” it would be different and more accurate.
Most states seem to have this right by now. They have separate laws governing this business, just as the rules governing auto financing and auto leasing had to be different.
Wisconsin and the rent-to-own business have it right—they are different than a furniture store or a Best Buy. But they are committing PR suicide by fighting it this way.
Transparency is always a good idea. As a business owner and provider of services, I could not in good faith withhold information about what my customers are paying for and more importantly, the quality they are receiving. In such a niche industry that caters to people with very specific needs, it’s unlikely this announcement would grow the Rent-A-Center business or the furniture rental industry. People are looking for more details, more deals, and more clarification, not less.
Why would any company seek to hide their fees, unless there was an ulterior motive? This reeks of a political payback of some kind, or at the very least a disingenuous set of circumstances. Every buyer should be easily aware of the final price. And yes, this does seem to prey on the less educated, lower income demographic. Shameless.
Why would any industry be relieved from transparency when it comes to costs in today’s world?
Speaking of transparency, I wonder who contributed what to Governor Walker’s campaign coffers to obscure this system rigged to fleece the poor.
If members of this industry want to charge extras for services such as pick-ups and deliveries they simply need to divulge these charges as any retailer should and generally does, though charging for pick-ups is a new one on me for retailing.
With a number of retailers stepping up layaway options, this would seem a more economically efficient avenue for consumers truly in need of products they struggle to afford.
Sadly there’s not much—or only so much—you can do to protect people from their own stupidity/incompetence…warning labels on products for infants aren’t there for the infants to read, and in this case I don’t know who the “parents” would be.
Carried to an illogical extreme, why not demand that owners of rental real estate separate out the interest charge, or on the rental of tools, motor vehicles (Hertz etc.) As for paying up to double what a product is worth, I noted recently that a can of Gillette Shaving Cream was $3.99 at CVs and $1.99 at Target. And what is a product worth? Starbucks? That said, I agree the poor often are the uneducated who sign contracts no sane person would sign.