Rent-to-Own Investigation Considerations for MH Lease Options
The way we, and many others, see lease-options for mobile homes to tenants at mobile home parks is that it's a win-win: for the MHP owner it's a win in that home inventory is being sold off to get closer to a full land-lease community, and it's a win for tenants whose dreams of home ownership are finally coming true for them. But, for a while it has been under scrutiny and extra care is required.
Recently, the Federal Consumer Financial Protection Bureau launched an investigation into the $8 billion-a-year rent-to-own industry with sights focused on Rent-A-Center after approximately 3,000 complaints were filed with the FTC in 15 states by customers citing that they were not only harassed for payment but that their credit was damaged for taking a rent-to-own opportunity.
The investigation and the article that follows below inspired some points of consideration for mobile home community owners to consider in light of lease-optioning the park-owned homes at their property. Spencer Roane, a prominent community owner and organizer of the annual SECO conference, gave us the following points as food for thought as we read the article about the Rent-A-Center investigation:
How might this compare to COs selling MHs in communities on Lease-Option contracts: * Effective interest rate - CFPB notes the effective interest cost to consumers of over 300%/yr. L-O contracts on MH sales in communities are often written with payments which correspond to about 10%/year. However, when COs sell the homes at cost (to fill vacant sites and upgrade communities) the effective rate of these sales, compared to 20% markup by other retailers, is under 7%/yr. When COs finance the purchase of the home (when the option is exercised) at no interest over the last year or two of the contract, the effective interest cost to the consumer drops to about 6%/yr.
* Markup - CFPB notes that consumers are charged as much as five times normal retailers. COs frequently sell MHs on L-O contracts at 15-20% less than other retailers, for the reasons mentioned above.
* Default rates - CFPB notes default rates of 75% over very short terms (under 3 yrs.). COs sell MHs on L-O contracts with default rates that rival those of conventional mortgages (under 3%/yr.)
* Volume - The RTO industry that caught CFPB's attention has annual sales of $8B. The entire production of all MHs produced annually is about $3B. A "best guess" of new MHs sold on L-O contracts in communities is well under $100M per year.
* Complaints - This CBPB investigation was triggered, in part, by thousands of consumer complaints.
Spencer closes with, "We're not aware of any consumer complaints about L-O sales of MHs in communities. Let's keep it that way!" We couldn't agree more! The following article worthy of consideration is credited to ncnewsonline.com.
The rent-to-own industry may have bought itself a roomful of trouble.
In response to an investigation by NerdWallet.com and Raycom Media, the federal Consumer Financial Protection Bureau has launched an investigation into the $8 billion-a-year industry, according to NerdWallet. The probe reportedly focuses primarily on Rent-A-Center, the nation’s largest rent-to-own enterprise with more than 2,400 stores selling furniture and appliances mostly to low-income Americans.
An analysis of 3,000 complaints filed with the Federal Trade Commission in 15 states by the two media organizations found that Rent-A-Center customers nationwide complained their credit had been harmed and they were harassed by bill collectors, even over accounts they had paid off. In a similar probe done by NerdWallet and The Texas Tribune, investigators found that “rent-to-own companies have used a little-known Texas law to press criminal charges against thousands of customers who fell behind in their payments in Texas and other states.”
Before we go further, it’s only fair to say that a check by The News of multiple consumer protection websites turned up no complaints against any Lawrence County rent-to-own stores, and that while a Facebook invite for residents to share complaints about those businesses reached well over 6,000 people, none responded with a tale of local woe.
Nonetheless, as in any business deal, the report — which appeared in Saturday’s edition of The News — suggests that consumers should consider their options and responsibilities carefully before signing any contract with a rent-to-own business.
Certainly, there are plusses to going the rent-to-own route when it comes to furniture or appliances. Among them: getting furniture quickly and with little money up front, as well eliminating a burden for people expecting a long-distance move within a set time period.
But there are also the negatives, the biggest of which are high interest rates. The Raycom-NerdWallet report said that to obtain ownership of the products, customers make payments for up to three years, paying as much as five times what they would pay at traditional retailers, yet on average, only 25 percent of rented items actually end up being purchased by customers. A Consumer Reports article reported that furniture renters paid the equivalent of 311 percent annual interest for some items.
If buying is not an option, some experts suggest using store lay-away or even bad-credit personal loans, which also have high annual percentage rates but ones that are still lower than rent-to-own contracts. Restraint and research are the consumers’ best tools here.
The first is aimed particularly at young adults, who feel that their first homes must have everything that it took their parents 30 years to accumulate and who are looking for shortcuts to get it. Remember, financial success and the comfort it affords is a marathon, not a sprint.
The second involves finding out everything you can before signing a contract. Check the Better Business Bureau website for unresolved complaints; read the contract terms carefully, and ask questions if something is unclear; find out what the total cost of the item will be if you’re going for ownership; what happens if you are late on a payment?
Really, these are advisable precautions before committing to any sort of contract. But the Raycom-NerdWallet report and the federal investigation it reportedly spawned should make potential rent-to-own customers even more heedful of possible complications.
FOR THE FULL ORIGINAL ARTICLE, PLEASE VISIT NCNEWSONLINE.COM
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