The Predatory and Abusive Industry of Rent-to-Own Furniture

Bill collectors knocking on your door and barging in with cameras. Doors kicked in. People in handcuffs. Class 4 Felony convictions. It's all part of your average day for the employees of... Rent-a-Center? Today we'll be looking at the strange world of the "rent to own" furniture industry and how it affects a subset of Chicago's renters, namely the lower income sectors.

Rent to own, or "RTO" to use the industry shorthand, is a huge industry in the US bringing in $8.6 billion in revenues nationwide in 2016 according to the Association of Progressive Rental Organizations. As points of comparison, the construction industry was recently bringing in about $13 billion and the financial services industry brought in about $17 billion per year according to Inc Magazine's list of the biggest industries in the US.

Note that this article does not address the concerns of rent-to-own within a housing context. That deserves an article of its own, which will probably appear here within the coming weeks. Today we are only talking about the businesses that offer rent to own furniture, electronics and appliances.

A Big Industry with Little Oversight

Given the size of the industry, legislation governing its practices is largely absent nationwide. In Illinois there is one mention of rent to own business practices. It's in the criminal code, sections 720 ILCS 5/16-1d and 720 ILCS 5/16-3a. It states that failure to return leased personal property within 10 days of receiving notice of non-payment is considered a Class 4 Felony. (Note that the same section addresses car rentals and library books.)

In Chicago's law books there is an entire section dedicated to taxation and tax exemptions on rent to own businesses, Title 3 Chapter 3-32, "Chicago Personal Property Lease Transaction Tax". It states that there is a 9% tax on rented personal property. It states that the sale of said property (the "own" part of "rent to own") is also subject to a separate sales tax. It lists a whole bunch of businesses that are exempt. It outlines what must be included in a personal property rental agreement:

• Date of transaction
• Names of lessor and lessee
• Itemized list of rented property
• Number and duration of lease payment periods
• Amount of each payment
• A unique serial number on the face of the document that cannot be reused
• Additionally, the lessor's account books must note the unique serial number of each lease.

The federal government is largely silent about the rent to own industry, save that its consumers are subject to the same protections as consumers of any other industry. Rent to own furniture customers are not covered the the Truth in Lending Act nor its amendment, the Consumer Leasing Act, which means they are not entitled to the same level of disclosures about costs, fees and that they would receive when applying for a credit card or a bank loan.

Targeting Low-Income Residents

The FTC did a survey of rent-to-own customers 18 years ago, publishing the results in April of 2000. While the information is dated, we can learn a few things about the landscape of the rent-to-own industry as it existed at that time. The FTC's website is currently offline due to the enormous surge of complaints from customers over the demise of net neutrality, so I'll provide a quick summary of salient details from the report:

• 2.3% of US households used rent-to-own services in any given year.
• 31% of customers were black. 73% had only a high school education or less. 59% had an income of $25k or less.
• Nearly half of all rent-to-own customers had been late with a payment.
• 38% of rented items were electronics, 36% were furniture, and 25% were appliances.
• The most popular rented items were TVs, sofas and washing machines.
• RTO customers who bought the items rented them for an average of 14 months before buying them.

That second item is the most crucial one here.

The US Census Bureau assigns a "hardship index" to community areas based on a combination of factors including employment, education, crowding and the number of individuals too young or too old to work. This index is a number from 1 to 100, with higher numbers indicating a that it's harder for folks to make their way.

I took a look at the location of the major RTO players in Chicago to see if anything had changed with their target markets in the past 17 years, and found that they are still working in the same low-income, predominantly minority neighborhoods. The two main presences in the consumer RTO industry in Chicago are Rent-a-Center and Aaron's. (This is pretty much the same nationwide.) Rent-a-Center has nine locations in Chicago and Aaron's has three. Here are the neighborhoods along with their hardship indices:

• Albany Park: 53
• Bridgeport/McKinley Park: 43-61
• Brighton Park: 84
• Edgewater/Uptown: 20
• Englewood: 94
• Hermosa/Belmont Cragin: 70
• Little Village/Lawndale: 96
• South Shore/Woodlawn: 43-58
• West Lawn: 56

Of the neighborhoods listed above, the only ones to have more than one RTO location within their borders are Englewood, Lawndale and Belmont Cragin, all on the higher end of hardship. But with the exception of Edgewater/Uptown, they are all on the higher end of the hardship index with some reporting some of the highest numbers in the country. It should also be noted that Edgewater and Uptown are two very different worlds, or at least they were at the time of the last census in 2010.

17 years have passed since the FTC report, but there's no doubt that the RTO industry is still targeting the poor. Anecdotally I can say that every time I saw a rent to own reference check come across my desk when working in property management it was for a low-income black family. Even when I worked with black families that were looking to buy property, they were quick to suggest that they rent furniture for the first year so that they could afford to buy a house. The presence of the RTO industry in areas like Hermosa and Little Village tells me that they're not targeting race, but income level. Some businesses follow the money. These guys run in the opposite direction.

The Cost of Doing Business

Now, I know that doing a rent-to-own contract for a condo or house is one of the most expensive options you can choose. It's mostly recommended for people who have issues with money burning a hole in their pocket. I wanted to see if rent to own furniture was equally much more expensive than buying it elsewhere. To understand the true options available, let's take a popular item from the RTO inventory, say, a big-screen TV, and see what it would cost if purchased in various ways.

The item we'll be looking at is a Samsung 65" flat screen TV, model #UN65MU6300. Here's the TV on Samsung's website. It lists for $999.99.

Here's the listing for the same TV at Rent-a-Center. Note that this link will probably vanish after some time, so I'll include the numbers here. It's $39.99 per week to rent it, or $173.31 per month. If you pay for it in cash within 90 days, it costs $2183.46. If you buy it after 21 monthly or 91 weekly payments, it will cost you $3639.09.

Now, if you were a person with cash on hand, you'd probably go pick it up on Amazon where it can be had within $10 of the $1000 list price. But let's say you're a low-income consumer without a lot of cash flow and limited access to credit. Maybe you'd charge it if you could get approved for a credit card. If you've got low income the best APR you can hope for on a credit card is somewhere around 23.9%. If you paid the same amount to the credit card company as you did to the RTO company, $173 per month, you'd pay it off in 7 months, with $73 in interest and $1140 in principal. Buying with a credit card, the same TV would cost you $1213.

Of course, the whole appeal of the RTO businesses is that they don't require a credit check. Their target market is the consumers who cannot get credit at all. Most of these folks could not afford the "90 days as cash" option either - if they could, they could probably buy the TV elsewhere. For the average rent to own furniture customer, paying $3640 for a $1000 TV is the only option available.

There's also the issue of the quality of the items offered. Buying these items in a store, you can be reasonably sure that they're new. This is not as certain when getting them from an RTO business. They could have been previously rented by other customers. They could be heavily damaged. Customer complaint sites are rife with photos of badly damaged "refurbished" wares provided by RTO businesses.

Heavy Handed Practices

But what if you're in that nearly 50% of RTO consumers that's late with a payment? Or, what if, as is very common, the RTO company thinks that you've missed a payment when you haven't? What happens then? Last October, the Consumer Financial Protection Bureau began an investigation into the collection practices of Rent-a-Center in Texas. Like Illinois, Texas has a similar law on the books making it a criminal act to fail to pay rent on personal property such as that obtained from RTO businesses.

Consumers complained of police involvement, people winding up in handcuffs, collectors filming their visits to individual homes, credit scores being tanked, doors being kicked in, threats of arrest, and general overzealous use of the criminal justice system for what is essentially a civil matter. Can you imagine the fracas that would ensue if landlords could pull these kinds of stunts when you miss a rent payment on your apartment? Fortunately Chicago's strict landlord-tenant ordinance protects apartment renters from such abuses.

Additionally the financial practices of Rent-a-Center have been called into question with accusations of mishandling of customer accounts, staff members pocketing funds, and inability to provide proper documentation of lease contracts. The FTC received nearly 2800 complaints about Rent-a-Center and their associated financing wing called Acceptance Now over an 18 month period from 2016-2017. A company that purchased debts from Acceptance Now found that at least 20% of the debts they purchased were actually paid off already by the original consumers. This means that these heavy handed collection practices are being visited upon not just actual non-paying customers but other folks who have made every payment in full.

The Texas state legislature is finally into creating new laws to govern their RTO industry. There's no word from Springfield if the Illinois state legislature will follow suit. The RTO industry has a pretty massive lobby so there's a lot of money going into keeping the issue out of legislator's hands. It was only when white collar interests - in this case, the Texas Tribune and a blog called NerdWallet, published their findings about the Rent-a-Center collection practices that any of this came to light, even though the 2.3% of the US population that uses the RTO industry could have told you about it all along.

White Collar Furniture Rental

There are certainly furniture rental options for the upper and middle classes. In Chicago, companies like Brook Furniture and CORT target more wealthy individuals in town for short business-related stays, college students and real estate agents who wish to stage empty properties while their on the market for sale. They also offer furnishings for offices and large scale events such as weddings, graduations or conferences. Their websites are full of animated images of happy professional people in business settings and active white college students jogging.

White collar furniture rental businesses must take a different approach, as their customer base has many other options available than the low-income consumers of Rent-A-Center and Aaron's have on hand. It's a very niche market and these businesses must behave themselves accordingly. Their customers have computers with internet access, so instead of many storefronts in low income neighborhoods they have posh showrooms in the Gold Coast or River North, and online catalogs with concierges to help you choose the best furnishings for your swank loft in West Loop.

However, these companies are not RTO. They are rental only, you cannot purchase your rented furniture at the end of its lease.

For the record, the cost of renting a 50" flat panel TV at Brook is $149/mo.

These companies appear to be keeping their noses clean. At the Better Business Bureau CORT has an A- rating with 1 complaint on file, and Brook Furniture has a B- rating with 2 total complaints. Rent-A-Center in contrast gets a C+ rating, with 1434 total complaints on file and a big warning at the top of their profile saying that they're under investigation for "abusive, unfair or deceptive collection practices." Aaron's gets off a little better with an A+ rating, but they also have 1586 total complaints in the BBB database.

If anything, the existence of well-behaved furniture rental options highlights the truly dismal state of affairs for the low-income consumers of the RTO businesses. It isn't the "rent" portion of the name that causes the problem, but rather the "to own" portion. They may gussy it up by saying you can return your rented furniture at any time, but at the end of the day RTO is a very expensive way to buy furniture. The collections problems crop up in the interim period when you don't officially own it yet, but think that you do.

Our Takeaways

As advocates for educated renting, we cannot endorse the use of RTO businesses in their current form. Given that they serve the most disadvantaged sectors of the population, it's unfortunately unlikely that any legislation will be created to regulate the industry at any point in the near future, at least outside of Texas. However, we understand that for some Chicago renters it's the only option available for things like TVs and computers.

With the accounting practices of these companies in such disarray, the risk of being charged with felony theft even if you've made every payment, and the targeted predatory focus on low-income consumers, we feel that it's best to let go of want of flashy electronics and appliances in favor of less risky thrift shop purchases. Your place might not look as fancy but at least you won't have the cops knocking on your door in the middle of the night over a rented sofa.

Above all we'd like to see some of the groups that work with low income populations pay some more attention to what's going on in the RTO industry. There needs to be more governance of these businesses. There needs to be more consumer education on the costs and risks involved with RTO use. Those who are most affected by the abuses of the industry are not likely to speak up for themselves. So if you're reading this and want to help, share it with your friends who have connections to local legislators and let's get some light focused on this mess, shall we?