Renting the Good Life

Abstract:     
Academic literature and court decisions are replete with calls to ban or severely inhibit the rent-to-own industry. The argument is simple enough: Rent-to-own firms charge exorbitant prices to the most needy and vulnerable segments of society.

The case for burdensome regulations, however, is much more difficult to make out than past scholarship has admitted. For the most part, academics have proceeded directly to propose specific regulations for the industry without first carefully analyzing the rent-to-own business or the reasons for imposing drastic regulations.

This Article examines the theoretical justifications for regulating the rent-to-own industry against the backdrop of interviews I conducted with key participants in the market, recent empirical data about the industry, and the industry's unique business model. I find that the case for completely banning the rent-to-own transaction is very weak. On the other hand, guided by insights from behavioral law and economics, policy makers have strong justifications for imposing regulations tailored to address the cognitive defects from which customers are most likely to suffer.

Keywords: rent-to-own, consumer finance, behavioral law and economics

JEL Classifications: D12, D18, K20

Accepted Paper Series