The PIRGs conducted a survey of 124 rent-to-own (RTO) stores in 17 states and D.C. in spring 1997. We compared the cost of rent-to-own to the cost of buying the goods at department stores. The survey follows up on 1993 and 1994 surveys by PIRG and yields similar results.  Overall, we found that, based on information reported by the RTO stores themselves about their cash prices for outright purchase and their rent-to-own prices:

          -- Nationally, RTO stores charge an average effective APR of 100 percent, although APRs are not disclosed.

          -- RTO stores charge effective APRs ranging from 16 percent to 275 percent for televisions and refrigerators.

          -- 48 percent (or 59 stores) of the RTO stores surveyed charged effective APRs of over 100 percent on one or more items -- that is, five times prevailing credit card rates (20 percent).

          -- Purchasing items via rent-to-own at RTO stores costs 2-5 times as much as purchasing the same items at department and discount stores. 

          -- Although the industry claims it prominently provides all the disclosures consumers need, the survey found that 37% of items had no clear marking "used" or "new" on the label, and that 50% of labels disclosed the total cost to own in smaller print than the weekly cost.

          -- "Cash prices" at RTO stores for outright purchase are in most cases significantly above generous alternative prices for the merchandise, if purchased at department stores. Prices for used goods in want ads were even lower.


The U.S. rent-to-own (RTO) business has grown from a fledgling industry 25 years ago to a $4 billion industry serving 2.8 million customers in 1996. Some 7,500 RTO stores offer appliances, furniture, computers, and other goods for "rent," with an option to own, or purchase. Consumers make weekly or monthly payments that typically require 18 months (or 78 weeks) to complete and acquire ownership.

Although the majority of consumers are unable to complete the long, difficult rental contract terms to achieve ownership, the industry targets consumers who want to own merchandise by selling them dreams. "You can OWN this TV for ONLY $9.99/week!!" Unfortunately, the consumer isn't told that the total cost is more than double the cost of buying the TV at a department store or that the interest rate (APR) could be as high as 200% annually, or more.

As part of the so-called "fringe banking business," which also includes check cashing stores, pawn shops and pay day loan stores, RTO stores aggressively target lower income and/or predominantly minority communities, where consumers may have more difficulty gaining access to less costly credit purchase options, or at least perceive that they do not have alternatives.

RTO is distinct from the much older rent-to-rent and appliance & furniture leasing businesses.  The RTO industry lures customers who intend to buy products, not those looking for true short-term rentals.  The Yellow Pages are filled with companies that provide true rent-to-rent and leasing services, for merchandise such as televisions and dining room sets as well as for tools and other goods.

The industry argues that since a consumer can cancel the contract at any time with no obligation other than to return the goods (and make previously unpaid payments), that rent-to-own is not like other forms of buying on time. Specifically, the industry vociferously opposes making interest rate, or APR, disclosures. That's not surprising, when RTO APRs average 100%, by our conservative analysis. PIRG, legal services organizations, and other groups, argue that consumers deserve to compare the true costs of rent-to-own with other options, and that the APR is the only way to compare different alternatives. [See "Rent-to-own = Ripping Them Off," U.S. PIRG, March 1994, for a detailed discussion of the history of rent-to-own.] 

The RTO industry has succeeded in obtaining the support of 44 legislatures whose laws basically require it to disclose only the weekly and total cost to RTO, with no mention of the cost of buying on time. This chart demonstrates the high cost of rent-to-own. The "outright" cash price is the cost of paying for and walking out with the goods today.


Comparison of Rent-to-own Costs to Department Store Costs


Rent-to-own Stores

Dept Stores


$Dept Store

Average Outright Cash Price for a 19" Color TV (all models)

$ 415.14

$ 217.74

1.9 x higher

Total Average Cost To Rent-to-own a 19" Color TV (all models)

$ 746.71

$ 217.74

3.4 x higher

Average Outright Cash Price for a 19" RCA Color TV (most common)

$ 451.92

$ 221.79

2 x higher

Total Average Cost To Rent-to-own a 19" RCA Color TV (most common)

$ 801.00

$ 221.79

3.6 x higher

Average Outright Cash Price for a 14 cf refrigerator (all models)

$ 734.73

$ 516.99

1.4 x higher

Total Average Cost To Rent-to-own a 14 cf refrigerator (all models)


$ 516.99

2.5 x  higher

Buying items with RTO is extremely expensive.  A typical 78 week purchase plan for a television set may result in total payments equivalent to several times the TV's outright purchase price at the RTO store.  At a typical store in the survey, for example, a television set was offered for rent-to-own for 78 payments of $9.99, for a total of $779.22, but was available for an outright cash purchase of $389.61 at a calculated APR of 105%. The total rent-to-own payment, then, was twice the outright purchase price, which was itself significantly inflated above the alternative market value of the set, $217.00 on average. Artificially high cash prices deflate the true APR the industry charges consumers, as shown in the chart below. Worse, many RTO goods are used merchandise, not new, making the prices quoted even more outrageous.

About 14 of the states with industry sponsored rent-to-own "laws" "limit" the total cost to RTO to double the outright cash price, but since the cash price is set by the store, not by fair market value, this restriction is virtually meaningless. The following chart shows that, in fact, RTO APRs calculated in this study are quire conservative. Substituting the department store cost of the TV more than doubles the APR. RTO cash prices bear no relationship to actual market price.

Comparison of Rent-to-own APRs Using "Industry Cash Price"

And "Average Cash Price" At Department Stores

Source: PIRG 1997 Rent To Own Survey



Typical Industry Cash Price = $389.61

Dept. Store Average Cash Price = $217.74

Weekly Payment = $9.99 for 78 weeks

 APR = 105%

APR = 230%

The RTO industry sweepingly argued to the House Banking Committee hearing in 1993 that because of the "terminable lease" nature of their contracts, RTO agreements are "neither credit sales under TILA [Truth In Lending Act] nor consumer leases, thus these transactions are wholly unregulated presently by any federal consumer protection statute." 

In PIRG's view, the only difference between RTO and credit sales is the fact that consumers can terminate their agreement without making all payments, simply by giving up the goods and paying incurred fees.  Otherwise, it looks like a credit sale, walks like a credit sale and is a credit sale. However, in recognition that consumers do benefit from the ability to cancel their contracts at any time, proposed pro-consumer federal laws compensate RTO dealers for the "unique" terminable lease benefit and provide them with a termination fee. However, the difference between paying cash and buying on time is interest, and should and must be disclosed as an APR.


Over the last ten years, the industry has succeeded in enacting pro-industry, anti-consumer laws in 44 states, including its 1996 reversal of Pennsylvania's pro-consumer law. However, the industry has recently lost a State Supreme Court case in Minnesota, and lower court cases in New Jersey and Wisconsin. Further, Vermont has enacted a new law requiring APR disclosure.

In Vermont, at least one major player, Rent-A-Center, has changed its standard contract to require a minimum six month lease, to avoid complying with APR disclosure of the Vermont law. In Minnesota, Rent-A-Center has established a points awards system and a balloon payment requirement in an attempt to avoid the strictures of that state's requirements.

In addition to attempting to enact anti-consumer legislation through in such critical battlegrounds as Wisconsin, Minnesota and New Jersey, the industry has once again focused attention on the Congress, where it narrowly missed sneaking an anti-consumer provision through on the last day of the 104th Congress. A special interest provision to preempt stronger state RTO laws had been added to the budget reconciliation bill by Rep. Dick Armey (R-TX), at the behest of the Texas-based Association of Progressive Rental Organizations (APRO), even though there had been no hearings or committee action on the matter. Fortunately, the provision was removed.



PIRG supports legislation proposed in the 103rd  (H.R. 3136) and 104th (H.R. 3003) Congresses by Rep. Henry Gonzalez (D-TX) and to be filed soon by Mr. Gonzalez in the current Congress. The bill provides consumers with the protection of state Retail Installment Sales Acts and usury ceilings, requires the disclosure of the Annual Percentage Rate (APR), and requires the industry to set cash prices at Fair Market Value.  The bill compensates RTO owners for the "unique" nature of their transactions, by also allowing termination fees, not to exceed 5% of the allowable cash price, recognizing that this "terminability" benefit to consumers is not provided in other types of credit sales.


Much weaker pro-industry proposals, as introduced by former Rep. Larry LaRocco (D-ID) in the 103rd (H.R. 2803) and in the 104th Congress by Rep. J.C. Watts (R-OK) (H.R. 2820) do not establish rent-to-own transactions as credit sales, nor require disclosure of APRs. These bills preempt stronger state laws and essentially exempt rent-to-own from consideration as credit sales. Consumer groups oppose these bills. The bills are a blatant attempt by RTO industry players seeking to carve out a legal niche where they can avoid giving consumers the information needed to compare RTO transaction costs to those of alternative transactions. That is unfair.


State PIRGs and the Virginia Citizens Consumer Council conducted a survey of RTO stores in spring 1997.  PIRG and other consumer groups' volunteers and staff visited and/or telephoned 124 RTO stores in 17 states, and the District of Columbia. 

Surveyors inquired about the prices for a 19" television set and a 14 cubic foot (cf) refrigerator, or their nearest equivalent.  Surveyors also researched comparison prices for the same or substantially similar items at area department stores, discount stores, and, since many RTO outlets rent used rather than new items, in local classified ads.

Surveyors then sent information gathered in the survey to U.S. PIRG, which tabulated the results.  U.S. PIRG calculated the effective APR charged by the RTO outlets using the quoted cash price for outright purchase, and the number, frequency and size of installments charged for RTO purchase. Not all RTO stores provided us with outright cash prices. Some claimed they chose not to sell outright; others apparently did not think it was a useful number for prospective customers to have. In those circumstances, we used average RTO cash prices to calculate APRs. In the tables, "outright cash prices" were provided by stores, "estimated cash prices" were RTO averages for the most similar product.

Unfortunately, this calculation cannot be easily done by a consumer. Imputing interest rates is an "iterative" process rather than a formulaic one. The calculator makes a "high" guess, then a "low" one, and gradually narrows in until the actual interest rate is calculated which fits the equation precisely.  In this survey APRs were calculated using a Hewlett Packard 17 B II Business calculator, which performs this iterative process relatively quickly.

Two amortization tables demonstrating the accuracy of two sample calculations are included below for a sample RTO purchase, and a credit card purchase at 20 percent APR. 


Rent-to-own may indeed serve an existing need in the marketplace, but it should be subject to the same prohibitions against unfair practices, usury laws, interest rate caps and other consumer protections as all other credit transactions. 

The PIRGs urge Congress to enact pro-consumer legislation to protect rent-to-own customers, not special industry legislation designed to immunize the industry.