you-can-always-get-what-you-want-the-case-of-rent-to-own-case1.pdf

“You Can Always Get What You Want?!?” The Case of
Rent-to-Own

Case

Author: Ronald Paul Hill

Online Pub Date: January 02, 2019 | Original Pub. Date: 2019

Subject: Business Ethics, Business & Management, Diversity, Equality & Inclusion in the Workplace

Level: | Type: Experience case | Length: 3009

Copyright: © Ronald Paul Hill 2019

Organization: fictional/disguised | Organization size: Large

Region: Northern America | State:

Industry: Retail trade, except of motor vehicles and motorcycles| Rental and leasing activities

Originally Published in:

Publisher: SAGE Publications: SAGE Business Cases Originals

DOI: http://dx.doi.org/10.4135/9781526466471 | Online ISBN: 9781526466471

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http://dx.doi.org/10.4135/9781526466471

© Ronald Paul Hill 2019

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“You Can Always Get What You Want?!?” The Case of Rent-to-Own

http://dx.doi.org/10.4135/9781526466471

Abstract

People living in lower socioeconomic communities in the United States often face a dearth of
retailers and service providers and lack outlets for healthy or affordable goods. For example,
large, durable items like furniture and home electronics are often only available in rent-to-
own outlets that charge significantly higher prices. Although these items may be unaffordable
for many in lower socioeconomic neighborhoods, prevailing cultural and societal perceptions
suggest that these material goods are widely available and important to self-esteem as well
as local social status. In this case, a young man who grew up in an impoverished community,
but left for better education and job opportunities, comes back to run a chain of rent-to-own
stores. He struggles with the ethicality of his firm’s offerings and its exchange relationships but
also recognizes the role it plays in making such products widely available and the benefits he
receives from the job. The case calls attention to the complexity of ethical decision-making when
personal decisions affect the collective and the social environment influences decision-making
models.

Case
Learning Outcomes

• 1.
To recognize that business decisions can have both professional and personal considerations
that must be looked at simultaneously. Students will ascertain that determining which ones take
precedence over others, as well as how best to resolve inherent values-based conflicts, requires
more mature thinking. For example, they may assess whether they would take a job that personally
benefits them but causes them to question its ethicality.

• 2.
To gain an appreciation for tensions that arise when managers struggle with decisions impacting
multiple parties. Issues of justice, especially distributive justice, are a critical component that can be
examined using a utilitarian or Justice as Fairness approach advocated by the U.S. philosopher John
Rawls. Students will understand that the meaning and consequences of things that seem “good” or
“bad,” or “right” or “wrong” vary depending upon perspective.

• 3.
To assess an ethical dilemma that includes one’s career aspirations, other employees’ interests
and motivations, customers’ desires, and concerns of local community stakeholders. If and how a
person integrates such diverse perspectives into coherent decisions are challenging. Students may
organize their thinking by using a stakeholder approach, seeking to integrate the various demands
and concerns of all relevant parties into a single decision calculus. In this pursuit, students will
understand the difficulties of balancing individual priorities with concerns for others with whom they
interact regularly.

Introduction

In many communities, the rent-to-own (RTO) industry is seen as an alternative to traditional retail sales, but
some critics believe it is an alternative that preys on the poor and exacts too great a cost. For people living
in lower socioeconomic communities, the RTO retail alternative often seems like a viable option. Unable to
obtain traditional credit or purchase more expensive goods, such as furniture or appliances, RTO businesses
seem to give those in disadvantaged economic positions a local and lower payment option to obtain the
products they could not seemingly otherwise purchase. Although they may pay more for the product in the
end, they can acquire RTO beds for their children, new appliances for their families, and new TVs and
computers for enjoyment and work right now. Prevailing cultural and societal perceptions suggest that these
material goods are important to self-esteem as well as local social status, and so, many people are willing

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to sacrifice so that they can have these products. Growing up, Jamal’s older friends and family members in
a nearby poor community often visited local RTO shops. It seemed like a normal way to get the products
they couldn’t afford to buy outright from retailers further away. After leaving his community to attend college,
Jamal has decided to return home to find work and be close to his family again, and a local RTO business
has contacted him about a position as a district manager. As Jamal learns about the exchange relationships
between the RTO shops and their underprivileged consumers, he wonders how to align his personal and
career goals with those of his community and the business that appears to give them what they want. He
clearly sees the upside of the current arrangement for himself, senior management, and their employees, but
he questions whether this exchange is in the best interest of their customers. Ethically, he wonders if fairness
is achieved when the products sold are at premium prices but not available elsewhere. Are the gains relative
to losses a fair bargain across all parties? Management clearly believes that customers choose to buy from
them because they see it as a legitimate transaction. Does the lack of typical options make a difference to
this case?

Moving Up the Socioeconomic Ladder

Jamal Walker was raised in the northern section of a large urban area that was known for its crime and
destitution. He was the third child of a single mother who worked two jobs so that her sons could have
opportunities beyond the neighborhood in which they lived. Jamal’s earliest memories were of his brothers
walking him to pick up their mother from one of her jobs so that she returned home safely. At the time, he did
not understand what the problem was; the landscape was familiar and did not seem threatening, at least when
his older siblings were present. They continued living there until Jamal was ready for school, and then they
moved to the next community over so that he could attend a better program. His early years were uneventful,
and he was considered an exceptional student by his teachers.

As he grew up, Jamal would go back-and-forth between these two communities with his family, visiting his
relatives, former neighbors, and friends. The contrast was significant enough that he recognized a relative
lack of supermarkets, banks, bookstores, and parks in his old neighborhood versus his new neighborhood. It
seemed odd to be either stuck inside people’s homes or hanging out in the streets in his old neighborhood,
while he could go to the mall or meet at a local park to play alongside other children his age in his new
neighborhood. Jamal knew that several friends and family members visited local RTO shops in his old
community instead of traveling to bigger stores in other neighborhoods. His friends were always proud to
share when they got a new TV or computer or game from one of those stores and he shared in their
excitement.

Jamal eventually graduated from high school, went off to the state college, and received a degree in
marketing management. Jamal was recruited out of college by a large consumer goods retailer and launched
a career in retail management, which took him all over the United States in his first 10 years of work. After
all this time away from home, Jamal became homesick and wanted to move closer to his family and friends.
His mother was now in her early sixties and suffering from several ailments. Both brothers were in their
original city, raising families of their own and working for small, but profitable, firms. Jamal had recently been
contacted by the largest RTO retailer in the region, and they were looking to hire a district manager. The job
paid well, would allow him to live near his mother, and it came with work responsibilities that could advance
his career. The interview with the regional manager went well, and he was offered the manager job running
five stores in and around his childhood community.

Rent-to-Own: Giving People What They Want

Jamal was briefed for a few days at the corporate headquarters, and he learned the ins-and-outs of the RTO
business. He had rarely been inside one of these stores but knew they were all over the poor communities
around his hometown. The company President, a well-educated Caucasian man with an ivy league MBA, met
with him for an hour and discussed the importance of having African American managers and employees
in stores where they were the majority of residents. He told Jamal that the services provided to less
affluent consumers were important because no one else was willing to provide them. He noted that the
prices seemed higher when compared to retailers like Sears and Best , but those retailers were not in
the lower socioeconomic communities – they were! Customers didn’t have to take several buses or pay

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delivery charges to visit retailers in other communities to buy products they could buy down the street from
their homes. Furthermore, they could count on the RTO shops to support them by delivering and installing
products, and even repairing or replacing items as needed.

He presented what seemed like a solid and ethical strategy: give people what they want where they live.
The RTO business didn’t require extensive credit applications and they didn’t force customers into debt for
purchases. Although Jamal appreciated that the RTO business was providing products that people wanted, it
bothered him that even the President was clear that the prices were significantly higher than at other outlets.
After the meeting, Jamal went online and read a number of articles in the press on how this thing operated
at RTO businesses. Customers who could not afford large-screen televisions or sound systems could rent
them by the week for 10, 20, or 30 dollars and keep using them as long as they continued to make regular
payments. Over a prescribed number of weeks, months, and even years, they accumulated “credit” towards
purchase, with two questionable considerations. First, if they failed to make a single payment for any reason,
their products would be repossessed and they started their rental contract and credit accumulation all over
again. Second, the total amount paid over time was sometimes double or triple what the same item cost at
a traditional retailer. Although it seemed like a viable “pay as you go” option for poor customers who wanted
the cache and comfort of owning new appliances, furniture, and electronics, Jamal wondered what cost they
were really paying.

Jamal did some calculations he remembered from his finance classes, and he discovered that the implied
interest rates were between 100% and 250%, an issue that had been viewed as “usurious” by several
state attorneys general over the last two decades. RTO lobbyists admitted that their prices were higher
but suggested that this differential was due to contingencies of working in communities that often failed
to have good credit or failed to pay on a regular basis. Furthermore, the RTO businesses were the only
retailers investing in these neighborhoods. Jamal remembered from his economics class: If there was more
competition, the prices might be lower. Also, lobbyists and RTO businesses noted that, if their customers feel
the prices are too high, they are free to go elsewhere. The fact that they continue to buy is proof that RTO is
a valuable service for people who cannot typically acquire these things.

Jamal decided to visit each of his stores, spending the better part of a full working day per outlet, to see how
the RTO business was in action. Jamal was generally impressed with how the workers interacted with the
local customers. They were friendly and helpful, explaining how small payments could amount to ownership
over time. He examined the sales logs and noticed that less than 25% of renters made it all the way to
ownership, yet the majority of contracts were for several months. Did it mean that people gave up along the
way for good reasons, or that something happened along the way that kept them from making one or more
payments? Jamal charted a small sample of longer-term customers to see how their paths to ownership got
disrupted. He found several examples of people who had items for extended periods of time, only to default
and start all over again with the same exact commodity. It seemed like they were paying for it twice or more.

Although the customer service and operations at most of his stores seemed harmonious, at two of his
five stores, Jamal witnessed disturbing scenes where former customers came in and confronted the store
managers. While miles apart, their anger stemmed from the same problem. They were a day or two late
on their payments, and someone from the store had gone to their residences and removed merchandise
without warning. In both cases, only children were home, and they were scared when they opened the door
and watched large men enter and exit with their prized possessions. The store managers explained that the
customer had signed contracts that stated unpaid bills would result in confiscation of rented items, and thus
their products had been repossessed when a payment was missed. The managers also explained that, if the
customers paid their bills on the spot, their products would be returned to them. Although one customer paid
her bill and left with her computer, the other customer stormed out, slamming the door on the way. Jamal
asked these managers if this type of exchange was common practice, and they stated that it was the only
way to protect merchandise and assure that bills were paid over time. They also noted that it made the stores
more profitable to re-rent the same things over and over again to the same people.

Ethics: Balancing Individual, Business, and Community Needs

Jamal went back to his newly rented apartment around the corner from his mother, and he decided to

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reconsider his situation. Personally, it was wonderful to be back near family and friends, and he was now able
to look in on his mother almost every day. Old friends had already stopped by, and his brothers planned to
have him over for Sunday dinners. He reconnected with a girlfriend from his past, and they rekindled their
romance with an eye to the future. Jamal had no idea where all of this would lead him, but it was nice to be
among people he cared about and who cared about him. He even thought about becoming a big brother to
give back to the community. This felt like home and he was determined to stay.

However, he could not shake the feeling that the RTO business was unethical. True, they provided services
and goods that other retailers did not. But at what price? Were they exploiting the hopes and dreams of
poor customers who were tantalized with unaffordable items made affordable at usurious rates? It seemed
like the typical “buyer” was a poor, working parent who wanted to give their families what they perceived
others to have. Given the lack of steady employment and below living wage incomes, many would eventually
default and start all over again towards purchase. Could that tactic be justified? The community members
who worked at the stores and earned good incomes thought so, especially when their bonuses kicked in at
the end of the year. That bonus and his annual salary would allow him to stay in the community he loved.

Jamal decided to speak with the regional manager about what his options were relative to his observations
of the good and the bad in the RTO business. He asked his manager a host of questions, including: Who
determined the weekly prices for these items and the number of payments prior to purchase? Was there any
flexibility around the problem of default, such as “forgiveness” for the first instance if no others occurred?
The manager listened carefully and nodded regularly to suggest his concern and agreement. However, he
stated that company regulations required strict adherence to all such policies after years of refinement and
interactions with thousands of customers. The prices were set by the district to reflect what the market could
bear and perceived problems associated with defaults. Jamal’s manager pointed out that, while Jamal was
focusing on the few isolated cases, he did not seem to realize that many people failed to treat merchandise
with the respect necessary to keep it in working condition over time – a source of sunk cost to the firm. Finally,
his manager conceded that Jamal could experiment with more flexible treatment of defaulters, but it was likely
that his stores would be less profitable and bonuses would be lower.

Jamal finally began to understand the complexity of his situation. His personal situation was important to him.
After 10 years away, he wanted to be in his community for his benefit and for the benefit of his family and
friends. The other employees were important as well as his own career and remuneration. He wondered if
changing the policies that hurt one stakeholder but helped another, such as the default policies, would be
ethical. It seemed like someone suffered at someone else’s gain. Also, he wondered why he should stand up
for customers who violated the contracts they signed. They chose to shop in the RTO stores, and if the rules
were carefully covered – and Jamal would make sure that they were – then shouldn’t people be accountable
for their actions? But what about people who experienced situations outside their control, like income earners
who fell ill and defaulted on payments because they had no sick or annual leave? Should he make such
exceptions? Was this fair to other customers who had different reasons for defaulting? Jamal had much to
consider before he could take any action. He wanted to balance his needs with those of his community and
his business. How could he decide what the right things to do were?

Discussion Questions

• 1.
Is it appropriate for Jamal to allow his own self-interests to guide his ethical conduct? For example,
charging prices and following procedures that disadvantage customers but put more money in his
pocket (and the pockets of his employees) may be viewed as wrong. Do you agree or disagree?

• 2.
Are Jamal’s responsibilities to the community different because he shares their history? Many
leaders are asked to “speak” for their communities when they are around people who are different
from them. Is this expectation fair, and does it have ethical implications?

• 3.
If Jamal truly wants to stay in this community and pursue his career, should he be willing to
take a less well-paying job with depressed future options to solve his ethical crisis? Under what
circumstance would such extreme measures make sense?

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Further Reading
Federal Trade Commission. (2018). Retrieved from www.consumer.ftc.gov/articles/0524-rent-own-costly-
convenience.
Harlan, C. (2014, October16), Rental America: why the poor pay $4150 for a $1500 sofa. The Washington
Post. Retrieved from www.washingtonpost.com/news/storyline/wp/2014/10/16/.
Hill, R. P. , Ramp, D. L. , & Silver L. (1998). The rent-to-own industry and pricing disclosure tactics, Journal of
Public Policy & Marketing, 17(Spring), 3–10.
Lacko, J. M. , McKernan, S.-M. , & Hastak, M. (2002). Customer experience with rent-to-own transactions.
Journal of Public Policy & Marketing, 21(Spring), 126–138.
Novak, M. (2016). Rent-a-Center customer horror stories allege harassment at home and work. Retrieved
from https://gizmodo.com/rent-a-center-customer-horror-stories-allege-harassment-1788124979.
http://dx.doi.org/10.4135/9781526466471

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http://www.consumer.ftc.gov/articles/0524-rent-own-costly-convenience

http://www.consumer.ftc.gov/articles/0524-rent-own-costly-convenience

http://www.washingtonpost.com/news/storyline/wp/2014/10/16/

http://https//gizmodo.com/rent-a-center-customer-horror-stories-allege-harassment-1788124979

http://dx.doi.org/10.4135/9781526466471

“You Can Always Get What You Want?!?” The Case of Rent-to-Own
Case
Abstract