FTC Testifies on Consumer Protection and the Rent-to-Own Industry

The Federal Trade Commission testified today on consumer protection issues relating to the rent-to-own industry. The testimony described the agency’s role in enforcing laws relating to financial issues, provided background on the rent-to-own industry, and described key findings of a 2000 report published by the FTC’s Bureau of Economics on the rent-to-own industry.

The testimony was presented by Bureau of Consumer Protection Deputy Director Charles Harwood, who told the House of Representatives Financial Institutions and Consumer Credit Subcommittee of the Financial Services Committee that the rent-to-own industry – known as RTO – consists of dealers that rent products to consumers, with an option to buy.

Typically, RTO agreements do not require a down payment or credit check, and provide consumers with immediate access to household goods for a weekly or monthly payment. They may be attractive to consumers who cannot afford a cash purchase, may be unable to qualify for traditional credit, or who want a product right away without the need to pay the full purchase price.

The FTC testimony noted concerns expressed by consumer advocates and others, such as the prices charged for buying RTO merchandise, which can be two to three times higher than retail price; the way consumers are treated during collection of overdue payments; and whether consumers receive enough information about RTO transactions, including disclosures about whether the merchandise they are renting is new or used. According to the testimony, RTO transactions currently are not specifically covered by federal laws that govern credit or lease transactions.

A report on the RTO industry published by the FTC’s Bureau of Economics in 2000 found that customers ultimately purchased 70 percent of the merchandise they obtained through RTO transactions. Most of these customers intended to buy the product when they signed the RTO contract. In general, the report found that three-quarters of all RTO customers were satisfied with their RTO experience.

In 2003, the report’s authors published a follow-up study on RTO transactions that reported additional findings. For example, the 2003 study found some evidence that state laws requiring the disclosure of the total purchase cost on RTO product labels were associated with lower levels of consumers who intended to purchase RTO merchandise, and higher levels of those who intended only to rent temporarily.

“The Commission will continue to work with Congress to ensure that consumers are protected when they enter into RTO transactions,” the testimony said.

The Commission vote approving the testimony and its inclusion in the formal record was 5-0. It can be found on the FTC’s website and as a link to this press release.

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(FTC File No. P084805)