Consumers often pay more for household goods purchased with rent-to-own contracts, but a federal report suggests that while rent-to-own consumers may be getting a raw deal, they don't seem to mind.

Rent-to-own buyers typically pay more for household goods than they would by using other methods to purchase them, but most of them wind up buying the merchandise they've been renting and are pleased with the transaction, according to the "Survey of Rent-to-Own Customers" conducted by the Federal Trade Commission.

"Rent-to-own transactions are not the lowest cost method of purchasing merchandise. Consumers with available cash or credit, or the willingness to wait until money for a cash purchase can be saved, will likely be able to obtain the merchandise elsewhere at a lower cost," the commission's report says.

Nevertheless, 70 percent of rent-to-own merchandise winds up purchased and in the hands of consumers and 75 percent of rent-to-own customers were satisfied with their rent-to-own transaction, according to the report.

Perhaps that's because, well, ignorance is bliss -- they may not be aware of the higher cost.

The rent-to-own or rental-purchase industry includes merchants renting furniture, appliances, home electronics and other goods to consumers who want immediate gratification and access to goods they may not otherwise be able to afford.

Often without a credit or income check, consumers enter into a self-renewing weekly or monthly leases for the rented merchandise, and are under no obligation to continue payments beyond the current weekly or monthly period.

The lease provides an option to purchase the goods, either by continuing to pay rent for a specified period of time, usually 12 to 24 months, or by early payment of some specified proportion of the remaining lease payments.

Rent-to-own purchases are almost always more expensive than other buying methods, the FTC says. While only 19 percent of rent-to-own customers were dissatisfied after purchasing goods, high prices were the most common reason for dissatisfaction, the report said.

"Clear and timely disclosure of the total cost would ensure that consumers are aware of the cost of purchasing through a rent-to-own transaction, allowing them to weigh the cost of a rent-to-own purchase with the benefits," and make more objective decisions the report found.

It also said because rent-to-own transactions are similar to credit sales, perhaps merchants should be required to use an annual percentage rate (APR) to more accurately reflect the price of goods.

"Another suggestion is that dealers use a price no higher than the manufacturers suggested retail price (MSRP)," and disclose it as such, the report said.

Survey Background

The FTC conducted the survey of 12,000 randomly selected U.S. households and identified 500 rent-to-own customers interviewed about their experiences, in reaction to a decade of allegations of serious consumer protection problems in the rent-to-buy industry.

The rent-to-own consumers were interviewed between December 1998 and February 1999 because the FTC had three primary goals:

1. To examine who uses rent-to-own transactions and how they differ from consumers who do not;

2. To determine whether rent-to-own transactions typically result in the purchase of the rented merchandise; and

3. To determine whether abusive collection practices are widespread in the industry.

The feds found:

• Only 2.3 percent of U.S. households had used rent-to-own transactions in the last year, and 4.9 percent had done so in the last five years. Compared to households who had not used rent-to-own transactions, rent-to-own customers were more likely to be African American, younger, less educated, have lower incomes, have children in the household, rent their residence, live in the South, and live in non-suburban areas.

• Nearly half of all rent-to-own customers had been late making a payment. Sixty-four percent of late customers reported that the treatment they received from the store when they were late was either "very good" or "good," and another 20 percent reported that the treatment was "fair." Fifteen percent of late customers reported being treated poorly when they were late, including 11 percent who indicated possibly abusive collection practices.

• Rent-to-own customers rented an average of 2.5 items of merchandise per customer over the last five years. Forty percent of rent-to-own customers rented merchandise on more than one occasion over that period.

• Thirty-eight percent of rented items were home electronics products, 36 percent furniture, and 25 percent appliances. The most common items were televisions, sofas, washers, VCRs, and stereos, which together accounted for over half of all rented merchandise.

• Merchandise purchased from the rent-to-own store was rented for an average of 14 months before being purchased, with 47 percent being purchased in less than a year. Merchandise returned to the rent-to-own store was rented for an average of five months before being returned, with 81 percent being returned within six months or less.

• Fifty-nine percent of the merchandise returned to the rent-to-own store was returned because the renter's need for the merchandise had changed, 24 percent was returned for financial reasons, and eight percent because of a problem with the merchandise or store.

• Ninety percent of the merchandise on which customers had made substantial payments towards ownership (of six months or more) was purchased by the customer, and ten percent was returned to the store.

"Most rent-to-own customers are satisfied with their experience with rent-to-own transactions, suggesting that the rent-to-own industry provides a service that meets and satisfies the demands of most of its customers," the report said.

But added, "Regulation of the rent-to-own industry should recognize that most rent-to-own customers ultimately purchase the rented merchandise. Regulation of the rent-to-own industry should also reflect, where appropriate, the differences between rent-to-own transactions and other forms of purchase."

For more articles by Broderick Perkins, please press here.

Published: August 3, 2001

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.