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The holidays are a slow time for the industry say Frankevich and Chuck Hess, store manager of Rent-A-Center at 1728 N. Keyser Ave., Scranton, but they expect things to pick up in January and February as customers with maxed-out credit cards turn to their stores for items they cannot afford to purchase outright. The roughly $6.6 billion rent-to-own industry bills itself as catering to the cash-strapped, but critics accuse it of profiting off poverty.
“Rent-to-own stores are predatory lenders, and basically, they’ve gone around to states around the country, including Pennsylvania, and they’ve pushed through legislation that allows (sales) to be treated as leases, not loans,” said Jim Swoyer, a public advocate with Pennsylvania Interest Research Group, a non-profit, consumer-advocacy organization. “As a result of that, they don’t have to publish their APR’s (annual percentage rates).”
Swoyer and other rent-to-own critics say costs are exorbitant.
At the Keyser Avenue Rent-A-Center, you can spend $935.48 for a cocktail end table with weekly payments of $17.99 for 52 weeks or save $1.08 by making 12 monthly payments of $77.95 for a total cost of $934.40. Similar tables at Boscov’s in the Mall at Steamtown range from $79.99 to $99.99.
Interested in a new television at Rent-A-Center? With 113 weekly payments of $44.99, a 65-inch TV is yours at the Keyser Avenue store for a total cost of $5,083.87. Or you can save $15.43 with monthly payments of $194.94 for a total cost of $5,068.44. At Best Buy in Dickson City, a 65-inch costs $2,699.99.
Rent-to-own customers usually cannot shell out that kind of money up front, and store managers like Frankevich stress the convenience of leasing products. At Aaron’s, payments are made monthly or bi-monthly. And if you cannot pay on time, you can return the merchandise within seven days of the payment deadline with no penalty and lifetime reinstatement, Frankevich said.
Say you made six payments on the plasma TV before you crashed the car or got laid off and had to return merchandise. Frankevich said the reinstatment plan will let you pick up where you left off.
But returns are bad for business. While there are no credit checks at Aarons, Frankevich said he screens customers through their applications to avoid them biting off more than they could chew. Aaron’s
offers re-financing and payment deferments for those who get in over their heads.
Frankevich said his store averages about 80 rental agreements per month, with roughly 20 ending in returns by those who cannot make the monthly or semi-monthly payments.
“There’s so many different reasons for it. The car breaks down, loss of job, got your hours cut. If we’re not collecting our monthly payment, we’re not making money,” Frankevich said. “The last thing we ever want to do is pick up an account, so there’s lots of different ways we try to work with people. Unfortunately, sometimes you just can’t get it done.”
While critics compare rent-to-own to a debt treadmill, Frankevich said the potential financial injuries are minor.
“Overloading a customer with product and a monthly payment if they can’t afford it, it’s not doing anybody any good. They’re not going to be able to pay and you’ve got a bunch of merchandise sitting in their house,” he said. “I can’t see anybody getting into a tremendous amount of debt, just because they can voluntarily return the merchandise.
“And it’s not like a credit card. When you return it, it’s done.”
But overloading is urged in a column on rtoonline.com, which bills itself as the number one online destination of the rent-to-own industry.
“Often times, the difference between surviving and succeeding is only a few percentage points. Up-selling, convincing a customer to add on items, will provide that margin,” column writer “Rufus Mudsucker” advises in the Web site’s training link. “If your average agreement is $19.99/week and you convince just 25 percent of your customers to add on an item for only $5.00, you will increase your BOR (base of revenue) by over 6 percent. Up-selling as many as 75 percent of your customers is possible with an organized, well executed plan.”
That kind of mentality is typical in the rent-to-own industry, said Abigail Field, legislative advocate for New Jersey PIRG.
“It gives you a flavor for really how sophisticated this industry is at persuading poor people to agree to try to purchase goods that they cannot afford,” Field said. “This idea that somehow that they’re enabling people to purchase goods that they could otherwise not purchase is very misleading. The only thing they’re enabling people to do is have instant gratification.”
Untrue, says Bill Keese, executive director of Association of Progressive Rental Organizations, the industry’s lobbying arm. You might pay far less for a washer and dryer at Sears than to rent one at Rent-A-Center, but you save over using a laundromat.
Keese conceded rental firms cannot compete with big-box electronics retailers, which offer lower prices because they buy in bulk, but you are more likely to establish a personal relationship with rent-to-own salesman than with the Geek Squad at Best Buy.
Plus rent-to-own firms will not obliterate your credit rating if you cannot make your payments. Keese said it was “sensationalism” to say the industry profits off the poor.
“If they utilize it and they can’t afford it, they don’t suffer any consequences,” Keese said. “Our customers are usually repeat customers. The industry’s been around enough that we’re having children and grandchildren of original customers coming in to rent to own.”
Keese said the average rent to own customer rents products for about three months. But Frankevich and Hess said their goal is for customers to purchase their products by renting for the full life of the contract and that many customers do.
Frankevich said weekly payments like the kind offered at the nearby Rent-A-Center at 1010 S. Washington Ave., “rips off the customer” because there are more payments than at Aaron’s. But customer Marion Moss had no complaints about the rates.
“They help my credit rating and it’s easy to buy,” Moss said after renting a digital camera for her daughter last week at the Rent-A-Center at 1010 S. Washington Ave.
Moss concedes she could have saved a couple thousand dollars by buying outright the computer she rents for about $50 per month at Rent-A-Center, but said she likes the one-year warranty after final payment.
“At least with these guys, they fix it for free. So when you stop to think about it, it all balances out,” Moss said. “I’m a single mother with four kids, and I want to know that if my computer crashes, I can pick up the phone and say to these guys, ‘It crashed. Can you fix it?’ And they come right up and fix it.”
Moss’ experience with Rent-A-Center is more pleasant than that of Hilda Perez, a Camden cook who paid over $8,000 to Rent-A-Center. Rent-A-Center — the top industry company with $2.3 billion in profits last year — wanted $18,000, an 80 percent annual percentage rate.
Unlike Pennsylvania, New Jersey is one of three states with laws that treat the rent-to-own industry like retailers, limiting interest rates. On March 15, the New Jersey Supreme Court ruled for Perez, saying stores must abide by New Jersey usury laws which, restrict interest rates to 30 percent.
Rent-A-Center, which contends that its transactions are leases so usury laws do not apply, is appealing to the U.S. Supreme Court. Field acknowledges the decision will have no effect on states with rental industry shield laws like Pennsylvania. But she hopes it pricks Pennsylvania lawmakers’ consciences.
“Because the practices of this industry are so abusive and so anti-consumer and the court makes it clear that they understand that,” Field said. “There’s a reason New Jersey considers usury interest rates over 30 percent criminal. And that reason is morality. As a society, we just basically say there’s only so much advantage you can take of somebody.”
goodenow@timesshamrock.com
