Survey of Rent-to-Own Customers

The Federal Trade Commission has published an extensive study of the rent-to-own business, with a title identical to the heading of this section. It addresses three basic goals:

• To examine who uses rent-to-own transactions and how they differ from consumers who do not.
• To determine whether rent-to-own transactions typically result in the purchase of the rented merchandise.
• To determine whether abusive collection practices are widespread in the industry.

The FTC staff conducted a nationwide survey of over 12,000 randomly selected households between December 1998 and February 1999. The 500 households identified as rent-to-own households were then interviewed about their experience with rent-to-own stores.

Characteristics of rent-to-own households

The survey showed that 2.3 percent of U.S. households had used rent-to-own transactions in the last year, and 4.9 percent had done so in the last five years. As may be seen in the accompanying table, females were more likely to use rent-to-own than males and African Americans were about twice as likely to use rent-to-own as other race/ethnicity groups. The most likely age group to use rent-to-own were those aged 25-34, with usage rates declining by age thereafter. The higher the level of education, the less likely were respondents to use rent-to-own.

Other tables show that, as might be expected, households that used rent-to-own were most likely to be those in lower income groups, Those with less than a high school education were 4.5 times more likely to use rent-to-own than college graduates. Whereas 4.9 percent of respondents with incomes between $15,000 and $25,000 used rent-to-own, only 2.1 percent of those with incomes of $50,000 or more did so. Not surprisingly, 6.2 percent of students and 10.8 percent of respondents who were temporarily unemployed had used rent-to-own in the past five years.

Respondents who were in uncertain or transitional relationships were most likely to use rent-to-own. Whereas 5.8 percent of single respondents used these services, 8.6 percent of single respondents living with partners used rent-to-own. Whereas 6.1 percent of respondents who were divorced used rent-to-own, 12.4 percent of respondents who were separated did so. Families with four children were 5.4 times more likely to use rent-to-own than those with no children. It seems reasonable that renters were 2.3 times more likely to use rent-to-own than homeowners. It is one of the typical oddities of this type of research that 53 of the 12,136 respondents did not know whether they rented or owned their homes. Finally, respondents living in the south were 2.6 times more likely to use rent-to-own than those living in the west.

It should also be noted that there is a considerable similarity between the characteristics of rent-to-own customers and consumers using pawnshops. The monograph, Pawnbroking in the U.S.: A Profile of Customers, published by the Credit Research Center at Georgetown University in 1998 found that 23.9 percent of active pawnshop borrowers had used rent-to-own stores during the previous 12 months.

Other findings

Over the past five years, the average rent-to-own customer had rented 2.5 items, mostly home electronic products. The two most common types of merchandise rented were television sets and sofas. Sixty-seven percent of customers intended to purchase the item rented, but 87 percent actually did so. The longer that products had been retained, the more likely they were to be purchased. Four-fifths of the merchandise returned had been held for six months or less.

Three-fourths of rent-to-own customers were satisfied with their experience. They commented favorably on the merchandise, services and treatment that they received from the store's employees. Almost two-thirds reported that the response of the store was "very good" or "good." However, they and those who were unsatisfied were critical of the high prices of the merchandise. One reason for the high prices may be that nearly half of these customers had been late with their payments.

Consumer Protection Issues

Presently, rent-to-own transactions are not covered by either the Truth in Lending Act (TILA) or the Consumer Leasing Act (CLA). However, 46 states regulate the industry by laws similar to the CLA. The debate on the appropriate legislation centers on whether the items are merely rented or whether rent-to-own transactions are really installment purchases that should be governed by legislation similar to TILA. The problem is that at the beginning of the transaction, "It all depends." If the transactions are assumed to be installment purchases, it is exceedingly difficult to compute the annual percentage rate (APR) demanded by some consumer activists. As the authors of the FTC study observe, the "APR calculations could be subject to manipulation by rent-to-own dealers, possibly resulting in inaccurate disclosures that mislead consumers." Because of these and other concerns, the FTC study concludes, "Regulatory policies mandated for credit transactions and other types of purchases should be applied to rent-to-own transactions only after careful consideration of potential costs and benefits.