Rent-to-Own Laws

Currently, no federal laws regulate the rent-to-own industry.


The rent-to-own industry is a multi-billion dollar business with millions of customers, yet it is not legislated at the federal level. Rent-to-own is a purchase method that allows customers to lease furniture, appliances and electronics with an option to buy at the end of the lease period. It attracts homeowners and tenants who want to furnish their homes but don't have enough cash or credit to buy. On the surface, rent-to-own may make sense if you are starting a new home, but you might want to think twice before you pick up that king-size, kitchen unit or plasma TV. According to a survey of rent-to-own customers by the Federal Trade Commission, the final price of property bought through rent-to-own methods can be three to four times higher than retail prices, and sometimes more. A debate is ongoing between consumer protection agencies and the rent-to-own industry over legislation. The main issue is whether rent-to-own transactions should be regulated as a lease or as a credit sale. Regulating rent-to-own transactions as credit sales would force the rent-to-own industry to comply with the same rules that apply to the lending industry: high interest caps, APR disclosure and other consumer protection provisions.

Federal Laws

There are no federal laws that specifically regulate the rent-to-own industry. There are, however, two proposed laws awaiting approval by Congress: the Rent to Own Protection Act and the Consumer Rental Purchase Agreement Act. The Rent to Own Protection Act would regulate rent-to-own as credit sales. This would mean federal laws like the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the Fair Credit Reporting Act would also apply to rent-to-own transactions. The rent-to-own industry is lobbying strongly behind the Consumer Rental Purchase Agreement Act which defines rent-to-own operations as a lease. This would override existing legislation in states with stricter consumer protection laws for rent-to-own transactions.

State Rent-to-Own Legislation

In the United States 47 states have state laws regulating rent-to-own transactions. These laws require that businesses must disclose to customers the rules rent-to-own contracts must follow. California, for instance, has the Karnette Rental-Purchase Act. This Act defines the terms of rent-to-own agreements and provides consumer protection provisions. For example, it is illegal for rent-to-own businesses to enter agreements where the total of "payments" toward an item is higher than 2.25 times its cash price.

States Without RTO Legislation

Only four states do not have working rent-to-own legislation: Minnesota, New Jersey, North Carolina and Wisconsin. Minnesota does have rent-to-own legislation, but the Minnesota Supreme Court has ruled that rent-to-own agreements are also a credit sale and thus limited to an 8 percent annual rate of interest. Similar rulings have occurred in New Jersey, North Carolina and Wisconsin. According to the Association of Progressive Rental Organizations, the lack of legislation and adverse judicial rulings have severely restricted the growth of rent-to-own businesses, and in the case of Minnesota, done away with the industry altogether.

Rent-to-Own Homes

About the Author


Photo Credits

Suggest a Correction