Consumer Financial Protection Agency Should Cover Rent-To-Own Transactions

Americans for Financial Reform and many other groups sent the following letter to Senator Dodd and the members of the Senate Banking Committee arguing that the Consumer Financial Protection Agency should have authority over the “rent-to-own” industry.

To The Honorable Christopher Dodd, Chairman
Senate Banking Committee
534 Dirksen Building
Washington, DC 20515

Re: Consumer Financial Protection Agency Should Cover Rent-To-Own Transactions

Dear Mr. Chairman:

The undersigned organizations write to commend you for including a strong version of the Consumer Financial Protection Agency in your draft financial reform legislation. We urge you to reject efforts to weaken it through industry carve-outs, other forms of exemption from coverage or elimination of its critical provision reinstating federal consumer law as a floor not a ceiling of protection.

In particular, we write to urge you to reject any amendments that would exempt the Rent-to-Own industry from coverage by the CFPA.  Such an amendment was offered in House, phrased as an exclusion from the definition of credit of “a bailment or lease which is terminable without penalty at any time by the consumer.”

It is critical that this industry, which competes directly with other forms of high-cost credit and is regulated by several states as a form of credit, be regulated by the CFPA. Rent-to-own companies use unfair, unsustainable contracts to leave the most vulnerable consumers trapped in a cycle of high-cost, perpetual debt.

Rent-to-own businesses are essentially appliance and furniture retailers which arrange lease agreements rather than typical installment sales contracts for those customers who cannot purchase goods with cash or who are unsophisticated about money management. These lease agreements contain several special features.  First, the leases are short term, so that “rental payments” are due weekly or monthly.  Second, the lease agreements contain various purchase options which typically enable the consumers to obtain title to the goods by completing all payments over a period such as eighteen months or seventy-eight weeks, or more.  Third, the leases are “at will.”  In other words, the leases theoretically need not be renewed at the end of each weekly or monthly term. Nevertheless, the “leases” are regulated by several states as a form of credit because, essentially, the consumer is buying a product over time and paying a very high premium over the product’s sales price. The consumer renting to own is essentially engaged in an installment loan and buying a product over time, while paying a triple-digit APR with a high finance charge. The consumer often doesn’t complete the transaction due to the harsh terms. These are all aspects of predatory lending and as such should be regulated by the Consumer Financial Protection Agency.

According to an authoritative Business Week (21 May 2007) cover story, the rent-to-own industry has 8% of the “$250 billion/year poverty business.”  The RTO industry aims its marketing efforts at low-income consumers by advertising in minority media, buses, and in public housing projects. Statistics from the FTC show that the RTO customer base is among the poorest, and that the vast majority of their customers enter into these transactions with the expectation of buying an appliance and are seldom interested in the rental aspect of the contract. This attitude is encouraged by RTO dealers who emphasize the purchase option in their marketing even while they are minimizing its importance in the written contract.

The chief problems with RTO contracts are that these supposed leases are used to mask installment sales, and that these sales are made at astronomic, and undisclosed, annual percentage rates.  Under most RTO contracts, the customer will pay between $1000 and $2400 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 1½ to 12 times what a cash customer would pay in a traditional retail store for the same appliance.

The RTO customer base, almost exclusively low-income, could certainly benefit from meaningful consumer protections from an industry which preys upon consumers’ lack of perceived options. Mostly these consumers need protection from high costs and unfair practices. The Consumer Financial Protection Agency could provide these protections in a variety of ways.

We would be happy to provide you with further information. If you have concerns or questions, you may contact Ed Mierzwinski at U.S. PIRG (202 546-9707) or Lauren Saunders at the National Consumer Law Center (202 452-6252).


Americans for Financial Reform

Campaign for America’s Future

Center for Responsible Lending

Central New York Citizens in Action, Inc.

Consumer Action

Consumer Federation of America

Consumer Watchdog

Consumers Union


Empire Justice Center

Fair Housing Council of Central New York

Maryland Consumer Rights Coalition


National Association of Consumer Advocates

National Consumer Law Center (on behalf of its low income clients)

Neighborhood Economic Development Advocacy Project

New Jersey Citizen Action

New York Public Interest Research Group

Public Citizen


University Neighborhood Housing Program

Woodstock Institute

Cc: Members of the Senate Banking Committee