Rent-A-Center Settles with California
Just before Thanksgiving, California Attorney General Bill Lockyer announced what normally would be good news: a multimillion dollar settlement with Rent-A-Center, the nation's largest rent-to-own business with more than 2,800 stores nationwide.
California took the Plano, Texas-based company to court, alleging it had failed to disclose the true cost of its rent-to-own program to California consumers and that it engaged in deceptive marketing around its "Preferred Customer Club." For example, it told consumers they would get up to $500 in grocery discounts without mentioning that in order to obtain the maximum discount they have to pay RAC more than $100 in additional fees.
Rent-A-Center agreed to pay $7 million restitution and $750,000 in civil penalties. As part of separate, private lawsuit, the company also said it would pony up another $7 million for a special consumer protection trust fund.
Just as important, California won changes to RAC's business practices, such as making the company clearly disclose the terms of its Club membership.
All good, right?
Well, it is for California consumers. But there are still the other 49 states and the District of Columbia.
Turns out that four years ago, Congress passed legislation that imposed consumer disclosure requirements on the rent-to-own industry. But it also pre-empted state efforts to regulate rent-to-own establishments and treat the business as credit transactions that require disclosing APRs. Consumer advocates argued they should be treated as such because most of the industry's consumers end up buying what they rent--at 50 to 200 percent over the normal retail price.
Not surprisingly, it's a very lucrative business for Rent-A-Center, which in 2005 posted $2.3 billion in revenue, making it a Fortune 1000 company, right up there with Tiffany and Linen 'n Things.
(Funny to think you can make as much money overcharging to rent futons as it you can selling $10,000 engagement rings.)
The company has been in something of a slump lately, at least as far as Wall Street is concerned. Earlier this year, investors weren't happy with RAC's stagnant revenue growth--less than 1 percent--and same-store sales growth of only 1.1. percent. But some of them perked up when the company said it is expanding into payday lending services. With the number of stores it has, RAC is poised to take its place among payday lending giants such as Advance America and First Cash Financial.
So, if you don't have the dough to pay 50 percent more for that washing machine you always wanted, you have the option of borrowing what you need--at 400 percent APR.
Okay, you contrarians lurking in the blogosphere: Tell me why rent-to-own is a good deal for consumers and how the marriage of rent-to-own and payday lending is a match made in consumer heaven.
By Annys Shin |
November 28, 2006; 9:00 AM ET
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