What’s
Wrong Today:
From
Consumer
Reports:
you buy a $600 computer knowing that it would cost you nearly $1,900 after less
than a year’s worth of payments? How about a $1,000 clothes washer/dryer
combination that leaves you $2,700 out of pocket after two and a half years?
Those are the types
of deals you could end up with if you get your electronics, furniture,
appliances, or other items from a rent-to-own store.
Money
Magazine reported in 2011 that according to the rent-to-own industry association,
the Association of Progressive Rental Organizations, (APRO), there are
approximately 8,600 rent-to-own stores in the US and Canada. Their customer
base has swelled to 4.8 million people, up 67% since 2007. According to the
APRO’s website, the industry currently has $8.5 billion in annual revenues.
It appears
that with the current low growth economy, growing numbers of Americans are
renting all kinds of products rather than buying them. Like payday lenders,
pawn shops and Buy
Here Pay Here used-car lots, the growth part of the industry has become
tires.
Yes, tires. Why don’t people just rent everything that they wouldn’t need to keep afterwords? Such as rent a computer instead of renting to own…
Tire
rental businesses provide ready credit to consumers who can’t get a loan
anywhere else. The LA
Times reported on Saturday that chains
such as Rent-a-Wheel and Rimco are seeing business boom. Consumers who rent to
own pay double or triple the cost of buying and face aggressive repossession
policies.
But that
access doesn’t come cheap.
The LA
Times:
premiums for their tires, sometimes four times above retail. Those who miss
payments may find their car on cinder blocks, stripped of their tires by
dealers who aggressively repossess. Tire rental contracts are so ironclad that
even a bankruptcy filing can’t make them go away.
With
payments as low as $14 a week, rent-to-own is proving irresistible for
consumers desperate for safe transportation.
It’s also
a booming business for specialized tire and wheel dealers that have become beneficiaries
of a struggling US economy. Fast-expanding chains with names like Rent-a-Wheel
and EZ Rims 4 Rent that got their start selling high-end rims to car
enthusiasts have discovered a lucrative market selling tires on time.
A host of
economic factors are pushing the growth of tire rentals.
Soaring
costs for natural rubber and petroleum used to manufacture tires have pushed up
prices. The average price of a passenger tire in 2012 in the US is 57% higher than in 2006. The prices on some popular sizes have more than doubled.
Consumers,
meanwhile, have an increasingly difficult time affording big-ticket purchases.
Since
2009, median household income has fallen more than 5%. And in the wake of the
recession, the number of households in the country with credit histories too
damaged to qualify for most credit cards has risen to 35% from 27% five years
ago. Individuals can get Credit Cards for No Credit and use them to build their credit score and that will certainly help with small to medium sized purchases but not large purchases like a home.
With more
people shut out of traditional financing, the rent-to-own industry has
flourished. Promising no credit checks, small down payments and the option to
return merchandise at any time with no questions asked, chains such as
Rent-a-Center are raking in huge profits. Tires account for just a small slice
of the $8.5-billion rent-to-own market, but they stand out from the industry’s
traditional fare because – unlike with a new TV – giving back tires means not
being able to drive to work.
The first
rent-to-own tire and wheel dealers appeared in the mid-1990s, targeting young
urban males looking to spiff up their rides. Chains enlisted rap personalities
such as Snoop Dogg and Busta Rhymes to hawk shiny customized rims and
low-profile tires. But after the economy crashed, dealers saw an influx of
customers asking for standard passenger tires. Many new patrons were older and
a surprising number were women, a group the industry had all but ignored.
The market
leader is Rent-a-Wheel. With $100 million in sales, the company last year
ranked as the nation’s seventh-largest independent tire dealer, according to
Modern Tire Dealer. The chain operates 89 stores branded as either Rent-a-Wheel
or Rent-a-Tire, including 13 in California.
Another
chain, Rimco, is also undergoing a transformation thanks to changing customer
demand.
Four years
ago, 70% of Rimco’s sales were aftermarket rims and the rest were tires; today
that ratio is reversed. The chain, a unit of Atlanta rent-to-own giant Aaron’s,
has 28 stores and plans to open seven more by year’s end.
RimTyme is
the tire rental franchise of Rent-a-Center. Eric Malone, who owns eight RimTyme
stores in North Carolina, Virginia and Georgia, was drawn to the business by
the high profit potential. RimTyme averages more than $1.4 million a year in
sales in each of its 25 locations, nearly
double the take at Rent-a-Center’s traditional furniture and electronics stores.
Malone’s employees
make about three repossessions a week. Malone said some new customers file for
bankruptcy protection soon after getting new tires, hoping to shed payments and
dodge the repo man. But they quickly learn that because they signed rental
contracts, not loans, the deals can’t
be modified or discharged in court.
From the
LA Times:
Cherry, a North Carolina couple who rented their tires from Rent-N-Roll last
fall, filed for Chapter 13 bankruptcy protection after making just three
payments on their tires. A representative of Rent-N-Roll argued successfully in
court that this was one debt that couldn’t be negotiated: They could either
‘return the tires or pay them out.’
They paid
for the tires. The price was $982, almost triple what the Hankook radials would
have cost at Wal-Mart.
Florence
Cherry: “When you’re working paycheck to paycheck, your options are
limited…These tires were a lifesaver at any price.”
No tires
means no car and an immediate lost job in today’s at-will employment America.
So you get loan-sharked for $1200 for a $300 set of tires, or lose your job,
your home, your car, and have to face laws that all but criminalize being
unemployed.
These
businesses prey on the working poor. But state legislators have no problem with
the industry: 95% of the US populations living in 47 states are now subject to
state laws permitting rent-to-own transactions.
Are tire
repo guys the “small business owners” that the GOP is championing? This
is legalized loan sharking. More extracting of rents from the poorest among us.
Republican
policies are working as intended.
Even if you gave Republicans the benefit of the doubt, that they didn’t really intend for “this” to happen, the trouble is, now that it does, they still insist that no regulations are needed to prevent this sort of evil.