Thursday, May 03, 2007

Rent-to-Own Agreements Scrutinized in New Jersey

I hate rent-to-own.

This isn't because I've had to use it, or that I've ever used it at all. But I have been broke (or close to it), and I can see the appeal it has to poor people who would like to have nicer furnishings. With the demise of layaway (something I discussed here), it's increasingly difficult for lower income people to have some of the goodies the rest of us enjoy.

Rent-to-own has been the usurous predator that has filled the gap. These businesses require small weekly payments that contain huge interest. One or two missed payments and the item is repossessed...and all the money put into it is lost.

Now, Rent-a-Center has agreed to pay up to $109 million to members of a New Jersey class action suit. The suit alleged that Rent-a-Center violated the state's criminal usury law.

In rent-to-own agreements, customers lease furniture and other household items on a weekly or monthly basis with an option to purchase at a specified amount. By the company's own reckoning, Rent-A-Center, which has 43 outlets in New Jersey, has entered into contracts with more than 300,000 customers in the state since early 1999, with an average $840 paid on each.

Named plaintiff Hilda Perez, a Camden resident, entered into five rent-to-own contracts with Rent-A-Center, in 2001 and 2003, for a big-screen television and other items with a total cash value of about $9,301.

If she completed payment at the contracted weekly rates and additional option payments, she would assume ownership, after having spent $18,613.32. But she ceased payments in May 2002, after having paid $8,156.72.

When Rent-A-Center filed a small-claims suit, Perez sued the company, alleging that her rent-to-own contracts violated the Retail Installment Sales Act and the Consumer Fraud Act by charging exorbitant time-price differentials, namely, the excess amount over the price that the buyer must pay to purchase the goods over time.

After a trial judge dismissed her suit and the Appellate Division affirmed, the state Supreme Court reversed, holding that "on the continuum from pure lease to pure sale," the rent-to-own arrangement was closer to the latter and thus fell under the Retail Installment Sales Act.

Rent-to-own is an insidious blight on lower income people. If people took the 40 bucks they give to these companies and put it in a savings account (or just stuffed it in the mattress) they could usually buy the desired item in a couple of months. Our society panders to the instant gratification quality in all of us with agreements like this. Who else would pay $18,000 for a TV?