Rent-to-own transactions are an expensive way for consumers to acquire merchandise, with periodic payments typically totalling 2 to 3.5 times the price of the same goods at conventional retailers, a research study released by the Consumers Council of Canada finds.
Consumers pay 40 to 100 per cent more through periodic payments at a rent-to-own store than if they were able to purchase the item from that store at the outset. In addition, rent-to-own “buy it today” prices are typically higher than other retailers, from 20 per cent higher for refrigerators to 150 per cent higher for laptop computers, the study found. The study was based on store audits conducted between late November and mid-December 2015 at 63 rent-to-own stores across Canada.
The audits identified a number of practices that risk violation of existing consumer protection laws and others that are allowed, but place high risk on consumers. While provincial consumer protection law (outside Quebec) relies on sections of the Criminal Code of Canada to protect against unreasonably high lending rates, it is unclear these limits protect rent-to-own consumers.
Researchers and auditors entered stores posing as potential customers and recorded the prices, purchase options, service components and sales claims made. Each audit included more than 30 different questions. Rental and purchase prices were compared against prices for identical merchandise at other retailers.
Other findings arising from the research:
- Canadian consumers have few of the protections provided to similar consumers in other countries. Forty-seven U.S. states have laws to specifically address rent-to-own transactions. U.K. regulators are conducting thorough reviews of firms’ practices and fining those that violate existing laws. Australian regulators are reviewing legislation and also fining violators. In Canada, many of the best existing consumer protections are measures by vendors that mirror U.S. requirements.
- It is difficult for in-store consumers to view contract terms and conditions until they are presented for endorsement. As a result, many of the legislated protections – which require disclosure in the agreement – are less effective than they could be.
- Canada’s largest firm claims in-store and on its website to provide “free delivery” when delivery is a component of a separately charged and disclosed fee. Similarly, certain benefits promoted as features available through the purchase of optional services are actually available to all consumers.
- There are many common industry practices which disadvantage consumers. Firms are not required to disclose a “buy it today” price. There is no requirement that weekly and monthly rental prices be equivalent, and vendors have considerable flexibility on lease durations and whether to allow consumers to maintain purchase rights after a late payment.
“The rent-to-own industry is designed to serve consumers without savings and access to conventional credit. They are already disadvantaged compared to most consumers,” said Consumers Council of Canada President Don Mercer. “The higher costs of using these merchants can make it more difficult for these consumers to pay down debt, improve their credit rating or accumulate savings. It’s far from clear that consumers are adequately protected through current civil and criminal law and its enforcement.”
Before making a decision, consumers who consider a rent-to-own transaction may benefit from information provided by the Financial Consumer Agency of Canada (FCAC) at: http://www.fcac-acfc.gc.ca/Eng/resources/educationalPrograms/ft-of/Pages/credit-2-6.aspx
Consumers should review any agreement,ask questions and seek qualified independent advice if necessary, so they completely understand contracts they are offered, and the implications for their financial well-being, before agreeing to them. Consumers should also report any questionable practices they may experience to their province’s consumer protection office. For a list of those offices go to: http://www.consumerhandbook.ca/en/contacts/provincial-territorial-offices
The Council’s report includes a number of recommendations to improve consumer protection in the industry.
The Consumers Council of Canada has received funding from Innovation, Science and Economic Development’s (ISED) Contributions Program for Non-profit Consumer and Voluntary Organizations. The views expressed in the Council’s report are not necessarily those of ISED or the Government of Canada.