April 2012Volume 25, Number 3

What we think about, and what we’d like you to think about

Published as a community service by The Abell Foundation

The Abell Report

By Marceline White with Franz Schneiderman

At the request of, and with fund-ing by, The Abell Foundation, theMaryland Consumer Rights Coali-tion researched and wrote a reportaddressing the problems of Rent-to-Own. This Abell newsletter is amodified version of that report,which can be found online atwww.marylandconsumers.org. The Maryland Consumer Rights

Coalition (MCRC) researched Mary-land’s $67 million Rent-to-Own(RTO) industry, investigating thestructure of the industry, mapping thelocation of stores throughout the state,and comparing the cost of purchasingmerchandise at RTO stores to the costat traditional retail stores. The MCRCconducted qualitative and quantitativeanalyses of the RTO industry inMaryland. Research included a litera-ture review, stakeholder interviewswith RTO customers and former salesassociates, an analysis of complaints tothe attorney general’s office, and alegal analysis comparing Maryland lawto that of other states.To investigate the prices offered by

RTO stores in Maryland, the MCRCsurveyed 15 Rent-to-Own stores inBaltimore City, Baltimore County,and Prince George’s County between

June 2011 and August 2011. The sur-vey compared the cost of 42-inch tel-evisions and 18-cubic-foot refrigera-tors at RTO stores to the prices atfour local chain retail stores (Lowe’s,Target, Home Depot, and Best Buy)as well as to other nontraditionalretailers including Craigslist, appli-ance outlets, and second-hand stores.Annual percentage rates on RTO con-tracts were also calculated. If an identical model could not be

identified in each RTO store, thenprices for the closest available substi-tute were cited and then compared tothe cost for the same model (or a verysimilar one) at local retail stores andsecond-hand stores, and on Craigslist.

OverviewNationally, Rent-to-Own stores are

a $7 billion industry, with approxi-mately 8,500 RTO stores serving 4.1million households. The industrystarted in the 1960s, and is now com-prised of dealers who use Rent-to-Own contracts to sell furniture, elec-tronics, major appliances, computers,musical instruments, jewelry, and oth-er products. As the economy continues to

founder and credit is tightened, strug-gling families are increasingly optingfor Rent-to-Own products. Theindustry has grown from 3 million

The telephone jars Roz Bransonawake at about 2:30 in the morning.She is not surprised at the call nor tohear the caller say, “This is Paul Smith(not his real name) of the FBI-- and wehave a 17-year-old girl we picked up ina raid for sex trafficking. She wants out.We are at (name of hotel withheld),come get her.” That explanation is alltoo familiar to Ms. Branson; she is theexecutive director of TurnAround,whose mission is to provide outreachsupport services for Baltimore City’svictims of sex trafficking.The call starts a chain of events

that leads the girl out of the sex traf-ficking ring and into the welcomingarms of TurnAround. Six months lat-er Denise (not her real name) is ableto tell a visitor that she is now attend-ing school and dreams of being anattorney one day. She is studyingmath, shopping, enjoying the compa-ny of newly-acquired friends, and

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ABELL SALUTES:TurnAround, for providingvictims of sex traffickingwith a new life: “This ismy new family. This iswhere I was reborn.”

Rent-to-Own: Exploiting Baltimore’s PoorConsumers who buy from Rent-to-Own stores pay up to 3.5 times more than at traditional retail stores.

This report highlights how the city’s low-income population is victimized by the industry.

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customers in 2006, to 4.1 million in2009.1 More recent figures suggestthat the industry continues to expand.Recently, Aaron’s Rent-to-Own storesannounced that 11 percent more con-sumers rented items from its stores in2011, enabling the company toincrease revenue by 8 percent andgenerating more than $2 billion inprofit for the firm.2 Similarly, theCEO of Rent-A-Center noted that ithad increased its sales by 8.9 percentin the last quarter of 2011, earningthe business $737.5 million in thepast three months.3 Rent-A-Centeralso opened 445 new locationsthroughout the country last year.4

Here’s how it works: Consumerssign contracts to pay weekly, bi-weekly,or monthly to rent merchandise.Although consumers have the optionof returning the items they rent, mostRent-to-Own users intend to purchasethe items. According to a Federal TradeCommission (FTC) study, almost 70percent of RTO consumers intend topurchase the products they lease.5

Leased goods can be purchased inone of three ways: by renting themthrough the full term of the lease (mostlease agreements are between 12 and24 months); by making an early pay-ment of some portion of the remaininglease balance; or by paying the “cashpurchase price,” which is the price theRTO store charges to buy the itemoutright. (The cash price can usuallybe paid within the first three to sixmonths of renting the item.) Con-sumers who may not qualify for credit,

cannot afford a cash purchase, or valuethe industry’s flexible return policiesappreciate the Rent-to-Own industry. Yet critics contend that the high

cost and high interest rates that RTOcontracts carry make them a predato-ry financial product. Consumers whobuy from RTO stores usually end uppaying much more than they wouldpay to buy the same product, evenwith a high-interest credit card, at atraditional retailer. And because theindustry focuses on those with fewresources, RTO stores, like paydaylenders, charge high rates to thosewho can least afford them.Today, the Rent-to-Own industry

in Maryland generates about $67 mil-lion in annual revenue, as it chargesconsumers, on average, two to 3.5times more than traditional retailstores charge to purchase appliancesand electronics. One of the reasons the industry can

impose such high costs on consumersis that it is under-regulated, both atthe national level and under Marylandlaw. Not only do the major federalfair-lending laws not apply to theRent-to-Own industry, but the statehas also not updated its rental pur-chase laws in more than 20 years. Fur-ther, Maryland’s existing laws do lessto protect consumers from the indus-try’s high fees and hidden costs thanthose of many neighboring states.

Who Uses Rent-to Own and Why?The RTO industry recognizes that

many of its customers are low- tomoderate-income individuals andfamilies. According to the Association

of Progressive Rental Organizations(APRO), 61 percent of the industry’scustomers are between the ages of 35and 54, 84 percent are white, 61 per-cent have no more than a high schooleducation, 68 percent are female, and59 percent earn between $15,000 and$36,000 annually. The APRO alsofound that 70 percent of the indus-try’s customers own their own homes.6

However, results of an FTC surveydiffer substantially from these statis-tics. The FTC conducted a nationwidesurvey of RTO customers betweenDecember 1998 and February 1999,interviewing 500 RTO customersabout their experiences. It found that31 percent of RTO customers wereAfrican-American (the APRO esti-mates that about 15 percent of its cus-tomers are African-American), 73 per-cent had a high school education orless, and 59 percent earned less than$25,000.7 The FTC also found that 67percent had children living in thehousehold, 62 percent rented theirhomes, and nearly 45 percent of RTOcustomers had a credit card.Yet both studies confirm that the

majority of individuals who purchaseRTO products are from families ofmodest means. The FTC and APROagree that most RTO customers havea high school education or less andearn less than $36,000. Many ofthese customers cannot afford to buyappliances, furniture, or other largeitems outright, and do not haveenough credit available to buy themwith a credit card. Although theweekly or monthly installment pay-ments required to lease an RTO item

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The Abell Report is published quarterly by The Abell Foundation111 S. Calvert Street, 23rd Floor, Baltimore, Maryland 21202-6174 • (410) 547-1300 • Fax (410) 539-6579

The Abell Reports on the Web: www.abell.org

may be manageable for these families in the short-term, over the life of the contract, RTO merchandiseis quite costly. In the end, the RTO business model is a win-win

for the industry. If the borrower defaults, the RTO storetakes possession of the item and re-rents it, makingmoney again and again as multiple consumers rent thesame item. If the borrower succeeds in making all therequired payments, the company has often realized(and the consumer has paid) anywhere from two to 3.5times more than a traditional retailer would get for thesame item.

Problems with Rent-to-Own

CostMany consumer complaints about the industry

focus on the high prices charged by RTO stores. Infact, the FTC survey cited earlier found that 27 per-cent of all RTO customers complained about highprices.8 RTO transactions are costly because dealerscan inflate the price in two ways: by marking up the“cash purchase price” of merchandise on the storefloor and by charging interest rates that can exceed300 percent interest on the purchase.

Below, Table 1 shows the results of a recent Con-sumer Reports9 investigation. The study found thatthe interest rates for RTO items ranged from 84 per-

Rent-to-Own Rent-to-Own Rent-to-OwnSaving and Buying

Saving and Buying

Item The Deal Total CostEquivalent Interest Rate

Total CostSavings Over Rent-to-Own

17.3-inch Toshiba laptop

$38.99 weekly$1,872 after 48 weeks

311% $612 after 16 weeks

$1,260

32-inch Toshiba television

$14.99 weekly$1,169 after 78 weeks

101% $388 after 26 weeks

$781

Whirlpool washingmachine and dryer

$19.99 weekly$2,699 after 135 weeks

99%$966 after 49 weeks

$1,733

Signature Designdinette set

$12.99 weekly$935 after 72 weeks

84% $550 after 43 weeks

$385

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Table 1: Rent-to-Own vs. Saving and Buying

How the Industry Sets PricesMichael Sherba of Dundalk worked for 20 years in the

Rent-to-Own industry before leaving the industry eightyears ago in the face of what he saw as a rising tide of mis-conduct. In his days in customer service, Sherba learned how the

stores established the high prices they charged customers.The cash price the store charged was three times what itcost the store to buy the item from the manufacturer. Thecost of the rental contract was three times that cash price,or nine times the manufacturer’s cost for the product.In January 2012, Mark Speese, the CEO of Rent-A-

Center, discussed his store’s current mark-up policy, whichdiffers from the one Sherba saw when he worked in theindustry. Speese explained: “We work under what we calla two-by-two pricing formula. So, our wholesale costtimes two would be our average stated cash price. Thatcash price times two would be the total Rent-to-Own costif a customer would rent all the way to term to take own-ership of the product.” Speese stated that Rent-A-Centermakes a 50 percent profit from items that are purchasedfor the cash price and a 75 percent profit from merchan-dise that is purchased through 12- to 24-month install-ment payments. Sources: MCRC interview, October 2011, and Hines,

Alice, “Rent-A-Center CEO: New Consumer Bureau Won’tHave Authority Over Us,” February 3, 2012 HuffingtonPost, www.huffingtonpost.com.

Source: Consumer Reports Investigation, “Would You Pay the Equivalent of 311 Percent Interest to Buy a Big-Screen TV?” June 2, 2011,www.consumerreports.org.

cent to 311 percent and that house-holds would save a significant amountof money over the long term if theyavoided rental purchase agreements.Typical savings range from $385 on adinette set to $1,733 for a washer anddryer. The money that financiallystruggling households would save byavoiding RTO stores could provide animportant financial cushion.

RepossessionUnder current RTO laws, con-

sumers have very limited propertyrights. If a consumer misses a payment,many RTO stores move quickly torepossess their merchandise. This prac-tice imposes large losses on consumers:A person who has made most of thepayments on an item can lose both themerchandise and all those payments bymissing a single payment.Although many RTO stores do

allow consumers to reinstate theirrental agreement after missing a pay-ment, consumers generally must paythe outstanding balance plus an addi-tional reinstatement fee. To exercisethe reinstatement option, however,consumers must usually reinstate thecontract within two to five days.Many find this impractical and missthe deadline.10

Used MerchandiseConsumers who reinstate their

leases often find that the replacementgoods they receive are even more wornthan the merchandise they gave up.The used merchandise is often pricedthe same as new products, althoughthe contract may be shorter for a useditem than a new one. Although manystates, including Maryland, requireRTO stores to disclose whether an

item is new or used, there is norequirement to disclose the number oftimes an item has been re-rented.

Harassment/AbuseIn addition to their high financial

cost, RTO items often come withanother cost—peace of mind. Con-sumers regularly protest that RTOstores use a number of harassing tac-tics to collect payments; they oftencomplain that RTO collection agentscall them multiple times a day, at allhours of the day and evening, use foullanguage, issue threats, and even calltheir employers to press for payment. Michael Sherba, the RTO veteran

interviewed by the MCRC about theindustry’s practices, saw such high-pressure tactics first-hand. Heexplained to the MCRC that RTOcustomer-service staff would get a listof delinquent accounts in the morn-ing and that it was standard practiceto call the customers three times a dayto demand payment.According to Sherba, collection

calls would begin the day after a missedpayment. On day two of a delinquen-cy, the store would begin to call rela-tives of its customers. There was a zerograce period and zero credit for thosewho had already made most of the pay-ments on their merchandise. In Sher-ba’s experience, only about 50 percentof installment customers managed tocomplete their contracts.When phone calls fail to elicit a

response, RTO dealers often turn tothe law to help collect on their con-tracts or regain the merchandise. Vir-ginia law allows RTO stores to bringcriminal charges against delinquentconsumers, and a growing number ofstate residents who fall behind ontheir RTO contracts are beingcharged with felonies. The number of

these cases rose from 70 in 2006 tomore than 200 in 2010.11

Contracts and Reference ChecksBefore customers can lease an item

from an RTO store, they are oftenasked to sign a mandatory arbitrationagreement in which they waive theirright to a trial by jury if they havelegal claims against the store. Oneconsumer interviewed by the MCRCwas told that if she didn’t want to signsuch an agreement, she would have towrite a letter to the company head-quarters in Texas explaining why shedidn’t want to sign it. She didn’t do sobecause she knew this would add amajor delay to the approval process. The approval process itself is also

quite extensive. Consumers are oftenasked to provide three personal refer-ences, pay stubs, and bank statements,and to appear in person with photoidentification.

Federal Regulation of the IndustryRent-to-Own transactions general-

ly fall outside federal lending regula-tions, largely because federal law, likethe laws of most states, treats them asshort-term leases rather than install-ment lease transactions.Because almost 70 percent of

Rent-to-Own consumers intend topurchase the items they lease, con-sumer advocates often argue that itwould be more appropriate to treatRTO transactions as credit purchases.Under the credit model, the weekly ormonthly payments for Rent-to-Ownitems would be seen as a delayed pay-ment on a purchased item, ratherthan short-term leases that a con-sumer can opt out of at any time.Characterizing RTO transactions

as short-term leases has serious conse-

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quences for RTO consumers: Itdeprives them of important consumerprotections that they would have ifthe agreements were treated as credittransactions.Specifically, if the transactions were

treated as credit purchases, the indus-try would have to comply with thefederal Truth-in-Lending Act (TILA),state usury laws, and other credit reg-ulations. Under TILA, RTO storeswould have to disclose the actualannual percentage rate (APR) of theircontracts, among other disclosures.12

Consumer leases are covered underthe federal Consumer Leasing Act(CLA), but that law only applies toleases with terms of four months orlonger. RTO transactions can be can-celled at any time, so they do not fallunder the CLA. Because RTO trans-actions are not covered by either theTILA or CLA, RTO transactions arenot specifically regulated at thenational level.13

State Laws Three states (Wisconsin, New Jer-

sey, and Minnesota) clearly treat RTOtransactions as credit purchases; thecourts in each of these states haveruled that they are credit sales andmust be subject to the state laws that

govern those sales. In 2006, the NewJersey Supreme Court further ruledthat RTO transactions be subject tothe state’s 30 percent APR law.Other states treat RTO agreements

as sales lease transactions. However,many of these states have implement-ed policies that give significant pro-tections to RTO consumers, includ-ing capping the cash price and totalRent-to-Own price of items, requir-ing stronger consumer disclosures inRTO contracts, and regulating collec-tion activities. West Virginia requires RTO stores

to disclose the retail value (instead ofthe potentially inflated cash price) oftheir merchandise, and the rental pur-chase price can be no more than 240percent of the retail price. Vermontrequires disclosure of the effectiveAPR of Rent-to-Own contracts.California, Hawaii, Maine, and

New York have fixed both the cashprice and total price Rent-to-Owndealers can charge. The maximum cashprice is fixed at a multiple of the whole-sale cost and varies by product category.The total Rent-to-Own price is cappedas a multiple of the cash price.14

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How the credit check process works:The complaint that Elizabeth Rice of Baltimore filed after she rented a

washer from Rent-A-Center in November 2010 demonstrates how inva-sive the reference check can be.“The approval process for renting was as invasive as applying for a

mortgage or more so. I was required to provide three personal references,two of whom had to be family members. I had to provide pay stubs, bankstatements, mortgage information and appear in person with photo iden-tification. They called each of my references while I was in the store, ask-ing three questions: 1) How do you know the applicant?2) How often do you speak to the applicant? 3) If we were unable to reach the applicant, can we leave them a mes-sage with you?

These questions focused on how Rent-A-Center would reclaim theirwashing machine should I default, not on my ability to pay.”Source: MCRC Interview, October 2011.

Category California Hawaii Maine New York West Virginia

Appliances 1.65 2.0 1.75 1.75 1.56

Electronics (costing less than $150)

1.70 2.0 1.75 1.75 1.56

Electronics (costing morethan $150)

1.70 2.0 2.0 2.0 1.56

Furniture 1.90 2.0 2.50 2.15 1.67

Table 2: Caps on Cash Price: Ratio of Maximum Legal Rent-to-Own Cash Purchase Price to Wholesale Prices

Source: Ed Winn II, “Rent-to-Own at the Federal Level,” Association of Progressive Rental Organizations, 2010.

Other states, including Connecti-cut and Ohio, cap the amount bywhich total payments can exceed thecash price of the item. But RTOstores can circumvent this cap by set-ting an unreasonably high cash priceat the outset.California, New York, and West

Virginia also require RTO dealers todisclose the price of a similar item atother local retailers. This providesconsumers with important informa-tion that helps them make aninformed purchase decision.Strengthening consumer protec-

tions through rate caps and disclosureshas helped low- and moderate-incomefamilies in these states while allowingthe RTO industry to continue to pros-per. California has 289 RTO stores,New York has 281 stores, and WestVirginia has 55. The RTO industry inthose states has adapted to the man-dated changes and remains profitable.Maryland law does not treat Rent-

to-Own transactions as credit sales

and does not limit the finance chargesor interest rates that Rent-to-Owndealers can charge.

Maryland’s Rent-to-Own Industry In Maryland, there are 101 RTO

stores that generate more than $67million in annual revenue.15 The RTOindustry in Maryland is dominated bya few national chains including Rent-A-Center, Aaron’s, and ColorTyme,but smaller RTO dealers also operatein the state.

Mapping Rent-to-Own StoresRTO stores can be found in 19 of

Maryland’s 24 counties, or in 79 per-cent of the state’s jurisdictions. Theyare found in urban, suburban, andrural areas. The median number ofstores per county is three. BaltimoreCounty (21), Prince George’s County(16), and Baltimore City (15) havethe most stores in the state. The moredarkly shaded areas in Figure 1, below,represent the places with a greaterconcentration of RTO stores.

Figure 2, (see page 7), correlatesRTO stores to the percentage of house-holds in poverty in Maryland counties.In Baltimore City, the map shows astrong correlation. The city has 15RTO stores and is one of the Marylandjurisdictions where between 16 percentand 25 percent of households live inpoverty. However, this relationshipappears to be weaker in Baltimore andPrince George’s counties.

Looking at poverty by censustract shows an even closer linkbetween concentrations of low-income families and the location ofRent-to-Own stores (see Figure 3,page 7). Among Baltimore City’s 15RTO stores, three are located in cen-sus tracts where 70 percent to 100percent of households are low-to-moderate income. Eleven stores arelocated in areas where 51 percent to75 percent of households are low-to-moderate income, and one is in anarea where 26 percent to 50 percent ofhomes are low-to-moderate income. The MCRC’s data also show that

62.5 percent of the Rent-to-Own

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Figure 1: RTO Stores in Maryland

Source: MCRC Analysis of RTO Data.

Figure 2. RTO Stores and the Percentage of Households in Poverty

Source: MCRC Analysis of Census Data.

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Figure 3: Baltimore CityRTO Stores by Percentageof Households in Poverty

Source: MCRC Analysis of 2010 Census Data.

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stores in Prince George’s County and57 percent of those in BaltimoreCounty are located in areas where 51percent to 100 percent of householdsare low-to-moderate income.As the mapping demonstrates,

RTO stores, like other fringe financialproducts such as pawn shops or checkcashers, are predominately located inlow-income areas where consumershave limited access to other retailoptions. These are also often the con-sumers who can least afford the highprices that RTO stores charge, but,lacking the assets to pay for manyproducts in full, they often use RTOstores to buy merchandise.

Survey of Rent-to-Own Pricesand PoliciesAs Table 3, below, shows, the cash

purchase prices found at RTO storeswere between 1.49 times and 1.68times higher than the average cashprices at the retail stores. This price dif-ference is particularly notable because

several of the items priced at the RTOstores had obviously been used by oth-ers, but the prices had not been adjust-ed to reflect any depreciation. While these cash prices are high

compared to those of other retailers, itis important to remember that mostRTO customers actually pay muchmore to gain ownership of their itemsbecause they pay the much higherrental purchase price (the cumulativetotal of all weekly or monthly rentalpayments) instead of the cash purchaseprice. As Table 4 illustrates, the averagecost of renting-to-own is two to 3.5times higher than purchasing the samemerchandise from a retail store. More-over, the average APR of the RTOtransactions surveyed was nearly 150percent, with actual APRs rangingfrom 65 percent to 305 percent. These figures show that the low-

and moderate-income families whooften use RTO stores are payingmore—far more—than what individ-uals who have access to more tradi-tional retailers pay for the same mer-chandise. For struggling households

to lose, on average, $1,312 when theypurchase a refrigerator—or $1,814when they buy a large television—means that they may very well need tosacrifice other needs to make the pay-ments on their RTO items.

Major features of RTO salespractices identified by surveyors:• Prices were often two to 3.5 timeshigher than those in retail stores.

• All stores surveyed complied withMaryland price disclosure rulesand current law.

• Although merchandise was markedas used, salespeople were unable totell surveyors how long it had beenused, if it had been rented outmore than once, or other informa-tion about the item’s prior use.

• Used items often retailed for thesame price or a price very similarto the cost of new items, eventhough their value had depreciatedthrough use.

• Insurance packages that would cov-er the RTO customer for loss of ordamage to the merchandise were

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ItemRTO StoreAverage Cash

Price

Non/RTO StoreAverage Cash

Price

Price Difference

RTO/Non-RTOCash Prices

Refrigerator $1,016.87 $678.00 $338.87 149%

Television $1,229.88 $728.55 $501.33 168%

Table 3: Cash Prices at Rent-to-Own and Retail Stores

ItemAverage Rental Purchase Price

Non-RTO StorePrice

Price Difference

Total RTOCost/Non-RTO

Prices

Average APR of RTO Item

Refrigerator $1,990.00 $678.00 $1,312.00 249% 249%

Television $2,543.00 $728.55 $1,814.45 349% 146%

Table 4: Total Cost of Leasing for Full Term16 Compared to Purchasing From a Traditional Store

marketed in several stores. Whenasked, salespeople couldn’t providedetailed information about whatthe insurance packages contained.

The high costs consumers pay forRent-to-Own merchandise are also aloss for traditional merchants andother small businesses, and for thelow- to moderate-income communi-ties where most Rent-to-Own storesoperate. Paying more than $1,000extra for basic appliances like refriger-ators and televisions cuts sharply intothe disposable income that families ofmodest means have to spend on othergoods and services, or invest in theirhomes and communities. That lossmeans less spending and less businessat other area merchants, and it leavesfewer resources available to revitalizethose communities.

Complaints From MarylandConsumersA recent review of complaints filed

with Maryland’s attorney generalfound that the majority were againstnational RTO chains. Consumers fre-

quently complained about priceincreases or price-gouging, and mis-representation or omission of facts insales offers. Other complaints involvedcollection activities, harassment bycollection agents, and defective goods.

Just as the FTC found in its 1999national survey, the leading topics ofcomplaints against the RTO industryfrom Maryland consumers were priceincreases and price-gouging. The largenumber of price complaints stronglysuggests that many Maryland con-sumers did not fully understand thepricing policies when they signedtheir RTO contracts.

Maryland’s RTO PoliciesMaryland’s Rental Purchase Agree-

ment Act was last revised in 1989. Itgives consumers some safeguards butprovides fewer protections against thehigh costs and hidden fees of the Rent-to-Own industry than consumers havein many neighboring states.Maryland law does not place any

limits on the finance charges or inter-est that Rent-to-Own dealers cancharge. Dealers are not required to

disclose an annual percentage rate(APR), the finance charges, or interestrate consumers end up paying to ownthe product.17 Therefore, it is difficultfor Maryland consumers to easilycompare the cost of buying under aRent-to-Own plan to buying on aninstallment plan. Maryland law does contain some

helpful provisions for consumers. Asummary of key provisions is found inTable 5, below.

Alternatives to RTO

Save or Layaway Many consumer advocates suggest

that consumers consider either: 1) sav-ing up money and buying the item forcash at a traditional retailer, or 2) opt-ing for a layaway plan with a localretailer. The first option may be a goodidea for nonessential items such as a tel-evision, but consumers often can’t waitto replace household appliances such asrefrigerators or washers and dryers.Although many stores had shelved theirlayaway plans several years ago, ashouseholds continue to suffer financial

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Selected Disclosure Requirements Rights of Consumers

* the total number, total amount, and timing of all rental paymentsnecessary to acquire ownership

* a statement that the consumer will not own the property until allpayments are made

* a description of the rental property including an identification num-ber and a statement of whether the item is new or used

* the cash price of the property* the initial amount due before delivery or acquisition of the item* a statement describing the right to an early purchase option andprice, and the method for determining the early purchase price

* the consumer’s right to reinstate a contract after missing a payment

* RTO consumers may rein-state their contracts if withinfive days (for monthly con-tracts) or two days (for weeklycontracts) they pay all pastdue charges, any re-deliverycharges, and a reinstatementfee of no more than $5.

Table 5: Selected Provisions of Maryland’s Rental Purchase Agreement Act

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stress during the recession, many storeshave reintroduced them.National retailers, including Wal-

Mart, Sears, Best Buy, and Toys “R”Us have all revived their layaway pro-grams. While these plans provideoptions for low-income consumers,particularly those without access tocredit, the costs to consumers mayoutweigh the benefits.Most of the layaway plans these

stores tout are short-term solutions atbest. The plans allow consumers topurchase merchandise by paying offthe balance over eight- to 12-weekperiods. Once the balance is paid off,consumers receive the merchandise.Even though the fees and financecharges are quite high, this option is alot less expensive than purchasing thesame items at a Rent-to-Own store.18

Under all of these plans, con-sumers can cancel their layaway pur-chases and receive a refund of the pay-ments they have made, with serviceand cancellation fees subtracted fromtheir refund.

Credit CardsAs the FTC report noted, almost

half of RTO customers have creditcards. Those consumers will find it

much less costly, over time, to paydown their credit cards (if they are at ornear their credit limit) and charge anitem on credit than to purchase thesame item on installment at an RTOstore. As Table 6, below, indicates, con-sumers come out ahead financially,even if they use a high-interest creditcard, when the cost of a credit purchaseis compared to an RTO transaction.

Second-hand Stores, Craigslist,Local ShopsConsumers who don’t have access

to credit can also find options that aremuch more affordable than high-priceRTO merchandise.Reviewing Craigslist, for instance,

the MCRC found refrigerators in sim-ilar sizes and models to those costingwell in excess of $1,000 at RTO storesroutinely priced between $100 and$300. Conducting a similar search fortelevisions, prices ranged from $150to $500 for televisions of a similarsize, model, and make to those sold inRTO stores for more than $1,000. Even factoring in the cost of trans-

portation to see and pick up the item,these prices are an enormous savingsover RTO purchases. Second-hand stores and thrift

stores run by nonprofits such as Habi-tat for Humanity’s ReStore and Good-

will Industries also offer consumersmuch lower prices for goods that insome cases are quite similar to thoseavailable in Rent-to-Own stores.

ConclusionRent-to-Own stores, like other

fringe financial products, serve pre-dominately low-income householdsand allow them to rent appliances,electronics, and furniture on a weeklyor monthly basis. Although someconsumers appreciate the ability tocancel their contracts and return themerchandise at any time, Marylandfamilies are paying two to 3.5 timesmore for RTO merchandise than theywould pay if they purchased the itemfor cash at another retail store. Theeffective APR rates on the RTO salesthat the MCRC surveyed range from65 percent to 305 percent. These high costs impose hardships

on families across Maryland, especial-ly on vulnerable families struggling tomake it through tough economictimes. Many financially strugglingconsumers are unable to maintainthese high payments and end up los-ing the money they’ve invested inRTO items when they have to returnthem or have them repossessed—while the RTO stores may go on to re-rent the same item four or five times.

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Type of Payment Payment Schedule Total Cost Total APR

Bank Line of Credit27 monthly payments

of $40$1,080 6%

MasterCard/Visa32 monthly payments

of $40$1,280 18%

Store Credit Card38 monthly payments

of $40$1,520

28%

Rent-to-Own24 monthly payments

of $80$1,920 72.5%

Table 6: How Much Will You Pay for a $1,000 Refrigerator?

Source: New York City Council, “Kick-Off to a Rip-Off: Loose Laws Lead to Inflated Prices for Rent-to-Own Consumers.”

RTO stores are not covered by fed-eral regulations and in Maryland suchtransactions are treated as a short-term lease, rather than a credit pur-chase, even though national studieshave found that the majority of RTOconsumers intend to purchase themerchandise that they are renting. Maryland consumers need more

protections from, and better informa-tion about, the fees and policies of anindustry that often imposes such highcosts on consumers.

MCRC Policy RecommendationsAs state previously, Maryland’s

Rental Purchase Agreement Act hasnot been amended since 1989, even asother states have enacted stronger pro-tections for consumers. In this difficulteconomic climate, state policymakerscan do more to inform consumersabout the long-term economic costs ofRent-to-Own stores. This will enablefamilies to make better-informed deci-sions when they buy appliances, elec-tronics, and other items. Several policy changes would help

strengthen Maryland law and betterprotect consumers. These include:• Establishing a price cap of 156percent of the wholesale cost forappliances and electronics, and167 percent of the cost of furni-ture and other goods. This priceceiling would allow RTO stores tocontinue to make an extremelyhigh profit but would give con-sumers new protections.

• Capping the maximum total of allpayments over the course of arental purchase contract at twicethe maximum cash price (severalstates have similar requirements).

• Giving consumers three days toreconsider and rescind a rental-

purchase agreement.• Extending the time consumerswho miss a payment have to rein-state their contract to 60 days, forthose renting on a monthly basis,and 21 days for those rentingweekly. If a consumer has paidmore than half the total rental pur-chase price of an item, he or sheshould have 90 days to reinstatethe contract.

• Barring any requirement that aconsumer obtain insurance, anypenalty for early purchase, or anylarge balloon payments as part of arental-purchase agreement.

• Expanding the disclosures in thesample form on an RTO contract

to include the effective APR for thecontract and the cost of the mer-chandise at traditional retailers.

• Treating RTO transactions as cred-it sales so that they would fallunder Maryland usury laws.

Endnotes1 www.rtohq.org/apro-rto-industry-overview.html

2 “Rent-to-Own News: Aarons Same StoreRevenues Increase 3.7%,” Feb. 12, 2012,www.rtohq.org.

3 Hines, Alice, “Rent-A-Center CEO: NewConsumer Bureau Won’t Have AuthorityOver Us,” Feb. 3, 2012, Huffington Post,www.huffingtonpost.com.

4 Ibid.5 Lacko, James M., Signe-Mary McKernan,and Manoj Hastak, “Federal Trade Com-mission Bureau of Economics Staff

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About the Authors

Marceline White: Marceline White has been the executive director ofthe Maryland Consumer Rights Coalition since 2009. Earlier in hercareer, she advocated on international fair trade, gender and develop-ment, environmental justice, and reproductive rights issues. Her publica-tions include: Trading Women’s Health and Rights? Trade Liberalizationand Reproductive Health in Developing Economies (2006), and Women andJustice (2004). At the MCRC, White authored “Debt Settlement inMaryland: Compounding Problems, Deepening Debt” (2010) andserved on the Maryland Debt Settlement Task Force and the MarylandForeclosure Task Force. She received her master’s degree in public andinternational affairs from the University of Pittsburgh and a bachelor’sdegree in journalism from the University of Missouri-Columbia.

Franz Schneiderman: Franz Schneiderman is the communications direc-tor at the MCRC, and brings extensive experience in advocacy journal-ism, public affairs, and political communications. For more than 10years, he worked for The Baltimore Sun as letters editor and an editorialboard member, and has performed communications and advocacy workfor a number of area campaigns and advocacy groups. Schneiderman is agraduate of Williams College and Johns Hopkins University.

For more information, contact us at: MCRC, 1209 North Calvert Street,Baltimore, MD 21202. facebook.com/marylandconsumers, twitter.com/mdconsumers, www.marylandconsumers.org, www.marylandconsumersblog.org

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appears personable, confident andeven, joyful—she is actually now acheerleader at her new high school.What happened in those six months?What took Denise from the place inlife she was in, sold as a sex worker,to the place in life she is now--in amood light enough to inspire her tobecome a student in high school andeven a cheerleader for its teams? Shehas an answer: “TurnAround becamemy family, and this is where I wasreborn.”TurnAround is a non-profit

organization that has been providingcounseling for victims of domesticviolence and sexual assault since1978. In fiscal year 2010, with abudget of nearly $1.3 million, theagency provided direct services to1,100 adult and child victims,including 122 adults and childrenwho were sheltered, representingapproximately 5,000 overnight stays.Responding to human traffickingcalls is also the business of Turn-Around; with Abell Foundationfunding, TurnAround is now provid-ing emergency shelter and supportservices for Baltimore City’s victimsof sex trafficking.Sex trafficking is a form of mod-

ern day slavery where women andyoung girls are forced to engage inthe commercial sex trade. By defini-tion, a sex trafficking victim is any-one who engages in commercial sexas the result of force, fraud or coer-cion, or who is under the age of 18(anyone underage cannot give con-sent to engage in prostitution).

* * *“When we get these calls,” Ms.

Branson, says, “our anti-traffickingteam quickly arranges for a ‘hand-off ’—that is, a safe place where thegirl can be transferred from FBI cus-tody to our program. It’s usually ahotel, or police headquarters, or aparking lot—a McDonald’s parkinglot, for example.“We find the victim has the

clothes on her back and nothing else.We keep jogging suits in the trunk ofthe car, we get her dressed and thenwe get her fed and then—remembershe is one scared girl now!—we takeher to a safe hotel room and let herget a good night’s rest. A staff mem-ber stays with her, and in the morn-ing sees that she gets breakfast.Then, from there on out, well—every case is different. It depends onthe victim’s needs, and we are pre-pared to address all of them.“But the key component to our

programming is the treatment of thetrauma that follows sexual violence.If you are raped a thousand timesyou have a very high level of violenceto deal with—and we do. We findshort term housing. We provide talktherapy. We assist with job training.We work on individual educationalneeds—some of these girls have notbeen in school since they were 13years old. We do job placement andpermanent shelter—sometimes in afoster home. We develop a life plan.”The TurnAround program now

serves around 40 girls—all victims ofsexual trafficking in Maryland. Abell Salutes Rosalyn Branson,

executive director of TurnAround--and also, “Denise,” for making thelong journey from sex victim toengaged student, and into a spirit ofwell-being that led her to become acheerleader for her school. She doesindeed have much to cheer about.

ABELL SALUTEScontinued from page 1

Report-Survey of Rent-to-Own Cus-tomers,” last modified June 2007,www.ftc.gov/reports/renttoown/rtosum-mary.html.

6 www.rtohq.org/apro-rto-industry-overview.html

7 Lacko, James M., Signe-Mary McKernan,and Manoj Hastak, “Federal Trade Com-mission Bureau of Economics StaffReport-Survey of Rent-to-Own Cus-tomers,” last modified June 2007,www.ftc.gov/reports/renttoown/rtosum-mary.html.

8 Lacko, McKernan, and Hastak, FederalTrade Commission Study, op cit.

9 Consumer Reports Investigation,“Would You Pay the Equivalent of 311Percent Interest to Own a Big-screenTV?” June 2, 2011,consumerreports.org.

10 Lacko, James M., Signe-Mary McKer-nan, and Manoj Hastak, “CustomerExperience with Rent-to-Own Transac-tions,” Journal of Public Policy and Mar-keting, 2001, 21(1): 126-138.

11 Hansen, Louise, “Criminal ProsecutionsSoar in the Rent-to-Own Sector,” TheVirginia Pilot, April 11, 2011.

12 Lacko, James M., Signe-Mary McKer-nan, and Manoj Hastak, “CustomerExperience with Rent-to-Own Transac-tions,” Journal of Public Policy and Mar-keting, 2002, 21(1): 126-138.

13 Ibid.14 Ed Winn II, “Rent-to-Own at the Feder-al Level,” Association of ProgressiveRental Organizations, 2010.

15The APRO stated that there were 91RTO stores in Maryland, but a Googleand Yellow Pages search revealed 101stores. Stores that only rented one prod-uct such as musical instruments were notincluded in the results. The MCRC didnot visit all the stores; therefore, someinformation may have changed sincemapping the data.www.rto.org

16 For this analysis, the MCRC calculatedthe payments based on weekly paymentsrather than monthly ones.

17Maryland Attorney General ConsumerPublication List, “Rent-to-Own: Worththe Convenience?”www.oag.state.md.us/consumer/edge109.htm.

18Hyman, Louise, “Laid Flat by Layaway,”The New York Times, Oct. 11, 2011.

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