South-Western Legal Studies in Business

Consumer Rental Agreements May Be Subject to Installment Sales Regulations and Interest Rate Limits

New Jersey high court held that the state's Retail Installment Sales Act applies to consumer goods leased from rental centers since consumers have the option to buy. That also makes the agreements subject to the state's criminal usury restrictions.


Consumer Protection

Key Words

Rent-to-Own; Leases; Household Goods; Usury

C A S E   S U M M A R Y

Perez entered into rent-to-own contracts with Rent-A-Center (RAC). It has 50 stores in New Jersey . She got furniture, a washer and dryer, TV and DVD player, computer, and large-screen TV. The contracts were rental agreements, but the consumer had the option to make all the rental payments and then obtain ownership. The contract on the furniture said its cash price was $987.47. If Perez paid rent for 95 weeks she would pay $1,820.88 and could then buy the property for no more than $164.57. After about a year, Perez quit paying and did not return the merchandise. RAC sued for damages for failure to pay or for return of the items. Perez countered that the contracts violated the New Jersey Retail Installment Sales Act (RISA) because in effect they charged an interest rate of 80%, which is in excess of the 30% permitted under the state criminal usury statute. The trial court and appeals court held for RAC. Perez appealed.


Reversed and remanded. While these were called rental agreements, the consumer had the option to become the owner. The contract was structured with ownership as its goal. These were conditional sales and so are retail installment contracts subject to the RISA. Questions regarding the application of the RISA are to be resolved in favor of the consumer. If Perez had made all the payments, she would have paid 80% annual interest on the merchandise, well above the 30% cap under the criminal usury statute.


Perez v. Rent-A-Center, Inc., 892 A.2d 1255 (Sup. Ct. , N.J., 2006)

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