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Florida's rent-to-own boom
By JENNIFER GOLDBLATT, Times Staff Writer TARPON SPRINGS -- For more than two years, Charmyn Brown has enjoyed having a Dell computer, bunk beds and a Sony TV and DVD player at her Tarpon Springs apartment. The cost: $128. Twice a month. Brown knows the home furnishings will cost her about double compared with buying them outright. But she chose to rent because money is tight. A part-time secretary, 30-year-old Brown has two small children and a husband on disability. "I can't afford to pay for it right out," said Brown, 30. "The majority of us have bad credit." Brown's home is one of 3-million that the rent-to-own industry furnishes each year. The industry logged about $5.3-billion in revenues last year and is growing annually by about 6 percent -- nearly three times the rate of retail sales. In Florida, rent-to-own retailers operate 520 stores, which produced about $257-million in revenues last year. Only Texas has more rent-to-own stores. "Florida has been an important state because of the population growth," said Mitch Fadel, president of Rent-A-Center, headquartered in Plano, Texas. The company plans to add five stores in Florida for a total of 137. "We're not saturated there," Fadel said. Rainbow Rentals, headquartered in Canfield, Ohio, plans to open stores in Florida in 2003. Buddy Bi-Rite in Tampa plans to add about four stores each year to its current 51 outlets. But consumer groups and lawmakers are increasingly critical of the rent-to-own industry's tactics of targeting poor people. Several congressional leaders have proposed stricter laws to toughen disclosure rules at the stores. The Florida Public Interest Research Group says the industry's current price disclosures aren't enough to protect consumers from overpaying for furniture. Consider a rust-color leather Ashley sofa at the Rent-A-Center in Port Richey. If you rent it for $33.99 a week for 100 weeks, it costs $3,399. If you purchase it outright, it costs $1,699.50. If you buy it at the Sofa Warehouse in Clearwater, it costs $1,348. But rent-to-own retailers say they're not selling price, they're selling convenience. "We're offering a service to the customer, allowing them an opportunity to be flexible, to make choices and change their choices," said Terry Beville, chief financial officer for Buddy Bi-Rite. 'No credit needed'The rent-to-own industry first emerged in the 1960s to serve consumers who could not qualify for credit cards. By the 1980s and '90s, the industry exploded as Rent-A-Center and Aaron Rents went public and started expanding nationwide. The stores allow consumers to get furniture and other high-end merchandise with weekly or monthly small cash installments, with the option to return the goods at any time.
The centers appeal mainly to households on limited budgets. A Federal Trade Commission study in 2000 found that 73 percent of customers had a high school education or less; 59 percent had household incomes of less than $25,000. The Port Richey Rent-A-Center store woos customers with ads that assure: "All you need is a place to live, a source of income and a few references. No credit needed. No deposit or application fee. Free service and delivery included." Wendy Woodwell, 33, a safety training consultant who lives in Tarpon Springs, isn't really concerned about what price she'll ultimately pay for her stackable Whirlpool washer-dryer and her RCA flat-screen TV. Woodwell is willing to pay for the convenience. "If you're six months in a place, then you only pay for six months," said Woodwell, while making her biweekly $32 payment. Over the past three years, she has also rented a bed and sofa. The FTC estimates 70 percent of renters eventually buy the product; the industry's figures put that number at under 25 percent. "Why pay for furniture and then you have to move and pay like $3,000 to move it?" Woodwell asked. She also likes not having to deal with repairs. The store's policy is that if something breaks, it offers a replacement at no extra charge. "If you bought something on credit cards with monthly payments and interest, you're not doing any better," she said. "I think the credit cards now charge 21 and 23 percent. That's a lot of money when you're talking about a flat-screen TV." The FTC's study showed that 75 percent of customers were satisfied, like Woodwell. But 19 percent of the customers were not happy, mainly with the inflated prices. Consider a 43-inch Toshiba Theater View TV with a stand. It costs $33.99 a week at Rent-A-Center. If you rent it to term, it will cost $4,282.74. That's dramatically higher than the one-time purchase price of $2,141.37. Fadel of Rent-A-Center says his company isn't out to compete with other retailers, especially the discounters. "We don't focus on the lowest cash price," he said. "This is what we're willing to sell it for, and we leave it up to the customer. Since most of our business is rental, we're not overly concerned if it's cheaper than Wal-Mart or not." Legal definitionsThe condition of the goods sold by the rent-to-own industry has gained the attention of lawmakers and consumer advocates. Florida PIRG has been pushing for the industry to require "new" and "used" labels on products. The consumer advocacy group conducted a study of 124 stores that found that 37 percent of the items were not clearly marked. Another issue is fair disclosure of rates. The federal government and most states treat the transactions as a lease and don't require the disclosure of effective annual interest rates. Vermont, Wisconsin and New Jersey have said through court cases that these are "credit sales" governed by consumer protection acts and so require interest rate disclosure. Attorneys general in those states have sued rent-to-own retailers for a variety of violations. In Vermont in 2000, Rent-A-Vision settled out of court for $447,000 claims that the store manipulated the terms of its contracts by hiking the cash price in order to lower the effective annual interest rate. Wisconsin courts determined in 1993 that the transactions were governed by a consumer credit act and has sued members of the industry numerous times since for failing to disclose interest rates and for deceptive advertising. In 1999, Rent-A-Center settled a $16.25-million class action lawsuit for failure to disclose interest rates. The state now has a case pending against Rent-A-Center and Colortyme, alleging deceptive advertising and seeking to force the disclosure of effective annual interest rates. Florida PIRG says the industry's current price disclosures aren't enough to protect consumers from overpaying for furniture. The rent-to-own industry is supporting a Congressional bill that would define the transactions as leases. PIRG and others are supporting a bill that would treat the transactions as credit sales and require the disclosure of the annual percentage rates. "Since different stores have different minimum monthly payments and different term lengths, it really makes it hard for consumers to comparison shop," said Mark Ferrulo, director of Florida PIRG. "But if every store had the APR, then consumers can make an educated choice as to what's the better deal." -- Staff researcher Cathy Wos contributed to this report.
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From the Times Business report
From the AP
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