|Faith and the Marketplace--An option to purchase the American Dream one-week at a time.||
by Fr. John Rausch
|In the showroom of my local rent-to-own store (RTO) sits the Heritage model Corolla classic dinette with two removable leaves and four white oak chairs. The ticket on the table reads, "Managers Special, $11.99, 61 weeks."|
Typically a low-wage worker buying a TV with 78 weekly installments at an RTO store will pay twice or three times the original price. The RTO stores structure their contracts as short-term leases to evade usury and most consumer protection laws. My local RTO contract reads: "This is a week-to-week or month-to-month rental agreement with option to purchase." Translated this means the customer can return the merchandise and cancel the renewable one-week or one-month lease at any time. By making the last payment, or paying off the balance early with costly stipulations, the customer in effect exercises "the option to purchase." The RTOs argument is that this kind of transaction is not covered by the federal Truth in Lending Act, which requires disclosure of the annual percentage rate (APR.) The RTO trade group, the Association of Progressive Rental Organizations, revealed that only 25% of RTO customers manage to complete the course of payments to own the merchandise.
In addition, "add-on" fees increase the price of the merchandise. A liability damage waiver (LDW) added to the rental fee acts like insurance against damage from lightning, fire, smoke, windstorm, theft or flood. The LDW for the Heritage dinette amounts to $0.95 per week, or an additional $57.95 to the total purchase price. Weekly payments are subject to state sales tax, 6% or $0.72 in the dinette example. And, with no grace period, my RTO charges a late fee of $7 if someone must come to collect the weekly payment. Charges at other RTO stores might include processing and delivery fees.
The use of sophisticated advertising and confusing tactics aimed at the most economically vulnerable people in society raises moral questions. Customers expect to own something in the end, but an RTO store gives no credit counseling or budgeting advice to help potential customers avoid losing money. Also, the denial that the bulk of the payments represent de facto interest distorts truth and supports a culture of the lie.
"Ethics in Advertising," a statement issued by the Pontifical Council for Social Communications, bluntly states: "It is morally wrong to use manipulative, exploitative, corrupt and corrupting methods of persuasion and motivation."
Besides legislation to regulate RTO transactions so usury and consumer protection laws apply, community groups are promoting consumer education. The Central Appalachia Peoples Federal Credit Union, which offers financial counseling and low interest loans (as do most credit unions), published an article in its newsletter entitled "The Rent-to-Own Scam." As a result, several folks were spared seeing the RTO truck loaded with their bed, dinette and TV, driving their piece of the American dream back to the showroom.
other articles of spiritual enlightenment in theMarch 1999 edition of The San Francisco Charismatics