By Roy Griffaw

A Google search for - pawn payday rent to own - finds 1,460 stories that contain all three terms. Why are these three industries consistently linked in the media? Why do PIRG and other so-called consumer advocates attempt to lump Rent to Own into the "predatory Lending" category? What do they have in common?  The short answer is absolutely nothing. But lest I be accused of over simplification, let me expand.

When a consumer enters into a rental purchase transaction, the consumer gains the use of durable merchandise; Usually furniture, appliances or electronics. A Pawn transaction on the other hand is a loan secured by some collateral. Like any other loan, default and you loose the collateral. In addition, the Pawn customer gives up the use of durable merchandise and pays a fee in return for cash. The Pawn customer is obligated to pay the pawnbroker to recover the pawned goods. If the customer fails to pay the pawn, the goods are sold by the pawnbroker.

A Payday loan bears no resemblance to a rent to own transaction. When a consumer enters into a Payday loan, that consumer is absolutely obligated to pay ongoing fees and interest until the loan is repaid. There are no options. Consumers of this service must also be "banked" (have a checking account). Un-banked consumers need not apply. A Payday Loan involves interest on the loan amount. A Rent to Own transaction involves no interest, requires no long term obligation on the part of the consumer, and does not require a customer to have a relationship with a bank.

Both the Pawn and Payday loan transactions involve the loaning of money to consumers. The Rent to Own transaction involves the rental of merchandise from week to week or month to month. The rent to own customer is under absolutely no obligation to continue the agreement after the initial period. Rent to Own consumers are in complete control of the transaction. All service is included and the customer may terminate the agreement at any time, for any reason with no penalty. In addition, nearly half of Rent to Own locations in the US offer "Lifetime Reinstatement." A consumer may return merchandise at any time and return later to rent again. They are given credit for all rent paid on the prior agreement...try that at the Pawn Shop! No other industry offers the flexibility available through rent to own.

The Rent to Own industry serves around 3 million households per year. While that number is large, it means that roughly 116 million households do not not utilize Rent to Own on a regular basis and as a result do not understand the unique benefits it provides. People tend to distrust what they do not understand. 15 years ago, you were "a fool to lease a vehicle," today it is one of the most common means of acquiring transportation.

State and local governments all over the country are gaining a better understanding of the unique value of Rent to Own. For example when Jim Doyle (D-WI) was Attorney General of Wisconsin, he spent his waking moments in an effort to rid the state of the very phrase "rent to own." He filed lawsuits and forced settlements until most companies abandoned the state. In turnaround not seen since Saul was struck blind on the road to Damascus, the now Governor Jim Doyle recently announced a statewide program that allows low income consumers to ability to rent to own homes.

Governor Doyle's 'Lease-Purchase' (wink wink) program works like this. A Wisconsinite pays rent on a home. A portion of the rent goes toward the purchase price (sound familiar). "The programs in our homeownership initiative will help break down some of the barriers to purchasing a home and give more working families the opportunity to save toward the chance of one day owning their own home," Governor Doyle said.

Governor Doyle would would probably disagree with the analogy between the value of his lease purchase program and Rent to Own. But try this; Take the above quote from Governor Doyle and replace "home" with "washer and dryer."

The programs in our washer and dryer-ownership initiative will help break down some of the barriers to purchasing a washer and dryer and give more working families the opportunity to save toward the chance of one day owning their own washer and dryer

Governor Doyle markets the initiative as “Strengthening Neighborhoods Through Homeownership’’ and "Homes for Heroes." (Perhaps the RTO industry should hire Wisconsin's marketing firm).

As lease purchase (another term for rent to own) becomes more common, the rhetoric will subside and eventually disappear. Rent to Own will rightly be recognized as a retail category completely unrelated to Pawn and Payday Loans. Is Rent to Own the right choice for every consumer? Of course not, but neither is leasing a Lexus vs. buying a Chevy. Rent to Own is a unique transaction and a tremendous value to consumers under the right circumstances.