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Rent To Be Owned 

That TV you're 'renting' is 10 times more expensive than a cash purchase.

In its 1995 session, the Arizona legislature enacted the Rental Purchase Agreement Act, SB 1246, enabling rent-to-own (RTO) companies to operate in the state. The governor signed it into law on April 15. It was the period when right-wing Republicans, in the spirit of Newt Gingrich's Contract with America, were making life more miserable than usual for the working poor.

A major beneficiary of the 1995 legislation was--and is--Rent A Center, a company that operates and franchises more than 2,500 stores nationwide, seven of which are in Tucson. Under the guise of "renting" home electronics, furniture and household items, Rent A Center had profits of $103 million last year on sales of $1.6 billion. And the beat goes on. Its total revenues for the quarter ended September 30, 2001 increased to $447.1 million, compared to $405 million for the same quarter of the prior year. Total revenues for the nine months ending September 30, 2001 climbed to $1.33 billion, nearly as much as for the entire year of 2000.

If you're an investor, forget about high-tech. This is where the money is.

J. Ernest Talley knew it. He started the business--the whole RTO industry, in fact--in 1963. A few months ago, he retired and sold his stock in Rent A Center back to the company for $15 million--740,448 shares at $20.25. A nice, secure retirement.

Rent A Center has also added to the millions of folksy 65-year-old John Madden by using him as its TV spokesman. Madden, already a multimillionaire sports commentator, uses his blue-collar, just-plain-folks image to persuade the working poor that paying $2,000 for a $450 product is a good deal. "Hey," he says with his most adorable grin, "Rent A Center has a holiday gift for you. But you gotta be lively and quick."

Also, you gotta be ignorant of the mathematics involved, since the interest rates on the installment loans (that's what RTO deals really are) are effectively 100 to 300 percent per year. Also, you gotta ignore the fact when you agree to this deal you have no equity in your "rented" TV or refrigerator. Miss one payment and it's gone. Repossession is rampant.

Yet the RTO industry has not shown up prominently on radar screens of many consumer guardians. For example, Jan Brownlee, a counselor for the Consumer Credit Counseling Service in Tucson, said she knows that lots of her clients have had troubles with RTO, but she cannot estimate how many have been affected. Part of the reason RTO is able to keep a low profile is because, unlike the payday loan and car-title loan industries, it does not loan money.

Even so, it is every bit as predatory as they are.

RTO businesses arrange lease agreements for customers who cannot purchase goods with cash or who are unsophisticated about money management. The agreements contain purchase options enabling the lessees to buy appliances or furniture by making payments for 18 months or more. The so-called "rental payments" are due weekly or monthly. Its marketing efforts target low-income consumers by advertising in minority media, buses and public housing projects, and by suggesting it has many features attractive to low-income consumers: quick delivery, weekly payments, no or small down payments, quick repair service, no credit checks and no harm to one's credit rating if the transaction is canceled.

According to the Consumer Federation of America, "Most RTO customers enter into these transactions with the expectation of buying an appliance and are seldom interested in the rental aspect of the contract. RTO dealers encourage this attitude. They emphasize the purchase option in their marketing even while minimizing its importance in the written contract ... . The chief problem with RTO contracts is not only that these supposed leases are used to mask installment sales, but also that these sales are made at astronomic and undisclosed effective interest rates. Under most RTO contracts, the customer will pay between $1,000 and $2,400 for a TV, stereo or other major appliance worth as little as $200 retail, if used, and seldom more than $600 retail, if new. This means that a low-income RTO customer may pay up to 12 times what a cash customer would pay in a traditional retail store for the same appliance."

There is some hope that help is on the way. California Congresswoman Maxine Waters has introduced a bill, HR 2498, that would supposedly make RTO dealers obey federal consumer protection laws. But, meanwhile, the RTO industry has pushed a bill through the House Financial Services Committee that the Consumer Federation believes is even worse than most state laws.

The only Arizona congressman on the House committee is John Shadegg, of the fourth congressional district (Phoenix, Scottsdale, Glendale and Paradise Valley). Shadegg was elected in 1994, during the Gingrich sweep. His Web site says he is "a leading advocate for reduced government spending, a balanced budget, and the reestablishment of state and individual rights."

Of course, those rights may not include the right to know how RTO companies are gouging the poor.

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