Kristoffer Tripplaar/Sipa USA via AP Images
Aaron’s retail store sign in Elyria, Ohio
With the COVID-19 pandemic bringing much of the economy to a standstill, more than 16 million Americans have filed for unemployment insurance in the past three weeks. The crisis accentuates the precarity already felt by a large segment of the population. Millions already struggled to pay their rent, utilities, and other bills, even before this crisis. We can expect creditors and landlords to step up garnishing bank accounts, repossessing cars and other personal property, and evicting tenants.
The rent-to-own industry will likely be a major player in this collections activity, threatening to repossess essential household goods while millions are confined at home. The industry has insisted that its high-interest credit offers on appliances, furniture, and electronics serve as an attractive rental option for its low-income customer base. On this basis, it has long dodged federal and state consumer protections. In a proposed settlement with three major rent-to-own operators over antitrust violations, the Federal Trade Commission (FTC) allows the lawlessness to fester and potentially encourages corporate collusion across the economy. Fortunately, the FTC can still correct course and adopt a strong final settlement, as the Open Markets Institute called for in a recent comment.
An entire economy exists to exploit the working poor in the United States. Lacking adequate or steady income and locked out of traditional banking and credit, they rely on check-cashers, payday and title lenders, and rent-to-own entities to subsist. The contrast between the mainstream financial economy and this fringe economy serving the vulnerable is stark. Whereas credit cards carry an annual percentage rate (APR) of around 15 percent (a comparatively high interest rate by historical standards), payday and title loans feature APRs of 300 percent and above.
An entire economy exists to exploit the working poor in the United States.
Rent-to-own outfits, such as Aaron’s and Rent-A-Center, fill an important segment of this alternative economy. They offer appliances, electronics, and furniture on weekly or monthly payment plans. If a customer makes payments for the full term of the contract (usually 12 to 24 months), they own the good outright. Even though most customers aspire to, and ultimately do, own items obtained through rent-to-own, the industry insists it offers rentals and so is not subject to federal and state credit protections. Disclosing the cost of credit under the federal Truth in Lending Act would mean informing customers that a rent-to-own TV comes with an annualized interest rate as high as 370 percent. The industry also criminalizes debt, routinely filing police complaints and threatening criminal prosecution to extract payments from distressed consumers. The Department of Defense, in a 2006 report, described the rent-to-own business, which targets members of the military, as predatory.
The FTC has an opportunity to inject some accountability into the rent-to-own business and appears eager to squander it. The FTC found that three leading rent-to-own operators—Aaron's, Buddy’s, and Rent-A-Center—had colluded with each other. For instance, Aaron’s would shut down a store competing against a Buddy’s store, transfer its customer contracts to Buddy’s, and promise not to compete against this Buddy’s location for three years. Buddy’s would reciprocate and shut down a store competing elsewhere against Aaron’s. The FTC also discovered that Brian Kahn, the managing partner of the private equity owner of Buddy’s, formerly sat on the board of Aaron’s (this is known as an “interlocking directorate”).
Although both the collusive scheme and interlocking directorate are clear violations of antitrust law, the FTC, in a proposed settlement, wants to let the three corporations off the hook with an order merely to not violate the law again. The companies would not have to return any ill-gotten gains, admit fault, or notify affected customers and employees. Admission of fault and notification by the companies would help the injured parties—consumers who overpaid for household goods, and employees underpaid on the job on account of this corporate collusion—pursue their own lawsuits for damages.
The FTC’s legal analysis is also troubling and suggests that the companies were given the opportunity to justify their collusion, even though it is a categorical violation of antitrust law. The implications are potentially very dangerous for the public. For instance, can pharmaceutical companies now rationalize their price-fixing conspiracies to the FTC and avoid legal sanction?
In the coronavirus crisis, the rent-to-own industry will likely go on a collections frenzy, as millions have lost their jobs and income and cannot pay their bills. Social distancing makes a home with a functioning refrigerator and a phone to stay in touch with loved ones especially essential, but many will lose their appliances, furniture, and electronics to rent-to-own repo men. Rent-to-own corporations have thrived by lobbying for legal exemptions and skirting federal and state consumer-protection law. In its final order, the FTC can bring some public accountability to the rent-to-own business. While a strong settlement here is not nearly enough to tame all industry abuses, it would signal that rent-to-own operators are bound by rules of fair dealing, and could be an important step toward root-and-branch reform of this unsavory segment of fringe finance.
