Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, September 28, 1993 TAG: 9309280087
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: MIKE HUDSON STAFF WRITER
DATELINE: LENGTH: Long
They keep coming back again and again to buy furniture, televisions and other household items, paying for them at weekly or monthly rates.
"I love it," Hale says. "This vs. retail - I'll take rental anytime. The relationship with the people is better. You get to know them over time. You become friends."
Not everyone has good things to say about the rent-to-own industry.
On Monday, Rep. Henry Gonzalez, the chairman of the U.S. House Banking Committee, introduced a bill that would toughen regulation on the nation's fast-growing rent-to-own industry.
Gonzalez, D-Texas, held a hearing this spring at which consumer groups charged the industry takes advantage of customers who are poor, financially unsophisticated or have bad credit.
Rent-to-own dealers say they treat consumers fairly - and that their customers are already well-protected by rent-to-own state laws, including those in Virginia. Those laws often are written by the industry's own lobbyists that require disclosure of prices and other protections.
"We don't want to be the financial managers of our customers, nor do we think that the government should be the financial managers of our customers," said Bill Keese, director of the industry's Texas-based trade group, the Association of Progressive Rental Organizations.
Consumer advocates say existing laws do not do enough to protect rent-to-own customers.
At issue in Gonzalez's legislation are the service fees and prices charged rent-to-own customers.
Rent-to-own customers generally pay two or three times what they'd pay at a retail store.
Since its start in the 1960s, the rent-to-own industry has grown to a $3.7 billion-a-year business with about 7,500 stores nationwide. There are about a dozen rent-to-own stores in the Roanoke Valley.
These stores offer durable consumer goods - everything from stereos to engagement rings to beepers - at weekly or monthly rates.
Contracts state that after a set number of payments - typically 78 weeks worth - customers can take over ownership of the items.
If a customer can't keep up with the payments, the store will pick up the merchandise and rent it to somebody else.
Rent-to-own stores have drawn criticism in many states because doing business with them generally is much costlier than than paying cash or buying the same merchandise on credit from a conventional retailer.
For example, the Rent-A-Center store on Roanoke's Williamson Road recently offered a set of metal captain's bunk beds and mattresses for $16.99 a week for 78 weeks - for a total price of $1,325.
But at the Sears, Roebuck & Co. store at Valley View Mall, a comparable set was for sale at $405. Financing the purchase over time added finance charges.
Rent-to-own-dealers say it is unfair to compare their prices to what retail stores charge.
They say renting to own is a different transaction from paying cash or buying on credit at a retailer.
However, consumer advocates contend rent-to-own and retail credit contracts do have similarities: Both offer goods in exchange for weekly or monthly installments.
But their are differences.
Rent-to-own customers who change their minds or simply cannot keep up payments can return their goods with no obligation for the rest of the payments, but have lost any equity in the deal.
With a traditional credit purchase, customers whose merchandise is repossessed still may owe money under the contract but retain credit for what they've paid.
Henry Woodward, who directs the Legal Aid Society of Roanoke Valley, said most low-income people who go to rent-to-own stores feel they have little or no choice, because they can't qualify for credit and don't have the cash to buy outright.
Woodward said one complaint he's heard from rent-to-own customers is that they pay for months and then - if a payment is late in the last two or three weeks of the contract - the store will come and repossess the merchandise.
Robinhood Rental's Hale said his stores never do that. He said they rarely repossess merchandise. "It's got to be real, real blatant, just absolutely irreversible before Robinhood will take any kind of action at all," Hale said.
His stores have even written items off if customers simply couldn't make any more payments, Hale said. When these customers were able to get back on their feet, he said, they came back and rented other things.
A key issue in the debate over rent-to-own is whether the stores charge interest.
The added cost of buying on time from a retail store - the difference between between the cash price and the total installment price - is an interest charge. Usually, retail stores charge interest rates of 20 percent to 30 percent on an annual basis.
Rent-to-own dealers say they do not charge interest. They say the extra price of buying on time from them is a service charge that covers their higher costs of doing business - such as making free repairs and being willing to take the merchandise back at any time during the contract.
However, Gonzalez and other critics of the industry charge that rent-to-own stores' hefty markups are actually hidden interest charges - at rates as high as 100 percent or 200 percent.
Gonzalez' bill would classify rent-to-own contracts as retail credit sales.
Thirty or so states limit interest rates on credit sales; Virginia does not.
In states that do limit retail interest, the legislation would force rent-to-own stores either to focus solely on leases that don't convey ultimate ownership or to lower their prices on rent-to-own deals.
It also might encourage Virginia consumer advocates to push the General Assembly to cap interest rates on retail transactions.
by CNB