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The Weird History of Predatory Lending in the Furniture Industry

A large steel bear trap with a stack of credit cards as bait.

Learn more about the unusual history of the furniture industry and its relationship with predatory lending, how it came to be, and what it means for consumers.

So a short while ago, I got into why adventures in buying and selling furniture can just be a raw deal. In case you missed it, here’s some key takeaways from that piece:

  • The average American moves 11.4 times in their lifespan (US Census Bureau)
  • The mean annual furniture spend for Americans is $518 per year (Bureau of Labor Statistics, check out the article above for more fun data extrapolation)
  • Furnishing gets stressful and expensive, and it’s why we just toss things at the curb regardless of how much room is in the truck.

The furniture industry is a tough nut to crack. Furniture is a $233B market with the United States having the most furniture purchases in the world, estimated to be $704 per capita– almost $200 higher than that annual spend reported by the BLS.

This is unsurprising given how often the average American moves in comparison to residents of other countries. It’s estimated that most Europeans only move FOUR times in their lives. Well, American job security is far more tenuous and tilted in employers’ favor for one. We also don’t get the same social safety nets that help foster stronger levels of housing security. Poverty still exists in European countries, let’s be clear: but you won’t risk losing your home because you get sick or injured. There’s other cultural and economic differences that make for far lower degrees of transience, but Americans still move quite a bit compared to people in other parts of the world.

Enter the furniture industry and its twisty tentacles of predatory lending for this often-unavoidable need.

 

What Drives the Need for Borrowing to Get Furniture?

A look at the interior of a furniture store that features a variety of furniture for the different sections of the house.

Most of these moves are brought on because of job changes, to reduce commutes, or in the case of the self-employed set, to be closer to clients and/or industry hotbeds. Major life changes also fuel this relatively more frequent relocation: marriage, divorce, having children, empty-nesting, and at the time of writing, pandemic-induced moves causing a suburbanization and rural housing boom that may or may not be temporary. With the surge in remote work and reduced reliance on major urban centers, Americans may also become less transient.

Regardless, it’s probable that one’s need for appropriate furniture at different stages of life and shifts in your income bracket fuels much of the above numbers. Unless you’re sleeping on the floor and eating off the kitchen countertop, chances are you’re getting SOME kind of furnishing. That suburbanization boom has the industry poised to achieve another $8 billion in growth by 2024. While industries like travel and entertainment were decimated due to safety concerns with large, transient crowds, the home improvement and furniture industries are facing explosive growth and demand, with Wayfair in particular screaming in glory.

But let’s get real. Millions of people are jobless and/or houseless right now, so those news reports about furniture stocks are only telling one side of the story. And I hate to tell you that it wasn’t any rosier before that fateful day in March 2020.

Having to finance furniture purchases has simply become a fact of life if you’re not that financially comfortable. 40% of the country can’t even weather a $400 emergency. Even if you’re among the 60% that could, it’s insanely hard to just have all that cash on hand even if you’re trying hard to save. Nerfed incomes across generations and egregious housing costs gobble up any disposable income pretty quickly.

Sure, there’s used furniture options like thrift stores and scanning eBay, AptDeco (if in the NYC metro area), OfferUp, Nextdoor, Facebook, and more. If your neighboring area is populous and transient enough, curb-shopping can produce some treasures if you’re handy. And as depressing as “eviction cairns” are, it’s better that those pieces go to someone who needs them instead of just winding up in a landfill.

But what about the things that you just shouldn’t buy used, like mattresses due to bedbug and other disease risks? Even a cheap new mattress can get expensive. Even if you got $2,000 sitting in your savings and you just made that big post-divorce move or moving for a new job, chances are that you need to keep that cash freed up for things where you don’t have the option to finance them, such as a security deposit.

Poverty itself is the crux of predatory lending; but as debt burdens permeate what’s left of the middle class, it’s all too easy to find yourself in this situation, especially if you have to shoulder your own moving expenses.

 

How Did the Furniture Industry Become Intertwined with Predatory Lending Practices?

A look at the storefront of a PayDay loaning shop.

The first major culprit for this is store cards, compounded with the pressure for your immediate need.

There’s countless articles out there about whether you should use a store credit card to finance your furniture purchase, this one has some pretty thorough information that’ll help guide your decision. The Simple Dollar’s verdict is “no, don’t do it if you can avoid it”. Which even with limited savings, you might be able to avoid unnecessary furniture-related debt if you have the ability to take as many of your old pieces as possible with you. Which is WAY harder to pull off with a cross-country move; I’m speaking from experience on this as the quotes I received from movers proved to me that I could get all new fancy-ass stuff from Pottery Barn for LESS than the distance and insurance costs alone.

Thrifting, scanning used furniture ads, and curb-shopping can also save money, but they can carry so many hidden costs like I covered in my harrowing adventures of trying to get rid of furniture on the Internet. IT’S SUCH A RAW DEAL. Why is it so freaking hard?!? Yeah, that fully-built Stuva wardrobe is only $50 on eBay, but you’re so screwed if you got no one to help you lug it home. Oh, it’s $80 to get a Lyft XL from Burbank to Long Beach and you have no idea if this thing will even fit in the van? Hope you don’t get an unexpected hospital bill from having to take it inside!

So with few funds and a pressing need to just get bedbug-free, disease-free shiny new furniture delivered to your home where assembly may also be included in that price? Financing it just makes more sense. Some furniture retailers may offer installment payments through specialized financing companies or ecommerce providers that have fixed interest rates, temporary grace periods, and you can get a good idea of how it would impact your cash flow in the next couple months.

But store credit cards are your next go-to if you don’t have the cash, or at least enough to put down right then. The concept of the “store credit card” was actually around before Visa, MasterCard, and American Express. It dates back to the Reconstruction Era when small, local general stores would sell goods on credit with extremely high interest rates, then became more ubiquitous in the early 1900s with the rise of the department store card, and predominantly with customer loyalty in mind.

They become a trap if your credit isn’t good enough to have a regular credit card that’s accepted everywhere, because the terms are not as favorable as your standard Visa card. Not only is the interest higher, but it’s typically not worth the discounts and sign-on bonuses that cardholders receive because once again, how often are you actually buying furniture? Even if you move frequently, you’re probably not buying new sets from the ground up every time! It’s not on par with say, a clothing store’s credit card where you’re far less apt to carry a balance and you need to replace things like socks, pants, and bras more often.

Even if the furniture store offers you a grace period to avoid payments right away–something you might be in a hard enough financial situation to take interest in– it can work a lot like the IRS does with unpaid taxes. Sure, you filed your form and read the terms, but interest is racking up every day that your balance goes unpaid. A 24% APR on $3,000 to outfit a 1-bedroom apartment is Usury City that’s somehow legal.

But as for HOW this became so ubiquitous, it actually has some ironic upmarket roots. Pier 1 Imports is credited with making store cards into a status symbol and buying furniture and home goods on credit, which helped fund the chain’s aggressive expansion campaign in the late 1980s. There’s no way that this could’ve happened if it wasn’t the cocaine-fueled days of synthpop, hair metal, and junk bond sales that were powered by sheer decadence after Reagan’s promise of no new taxes. You had to do your patriotic duty and sneer at your hippie past by making it all me, me, me and constantly buying shit, and what better way to do that than open up even more credit cards and getting THE BEST stuff? Meantime, 20 years later, you’ll sneer at at your Millennial children who are forced to open IKEA credit cards in order to buy cheap meatballs because the repo man took your student meal card and you’ve starting life $40K in the hole before you’re even old enough to rent a car.

Pier 1 was a thing of its own. It was between a furniture store and a department store, and the latter had the deepest roots in the store card notion. But as it goes in the business world, it’s not long before competitors in similar industries start adopting what other successful companies are doing. Furniture companies realized that while they could either market on decadence and aspiration, or on taking advantage of need and practicality since this was before the days of eBay, OfferUp, and sundry.

Then they saw an offer they couldn’t refuse for the ultra transient among us.

 

The Rent-to-Own Racket

A storefront for Rent-A-Center appliance store.

So let’s say that due to devastating circumstances, you’ve had to move often. You’ve hit that 11-move estimate before 40 due to poverty and issues that feed into it, like housing costs and needing to migrate for work more frequently. Or even if you’re not poor– you’re going out to LA for a few months for pilot season then plan on coming home. Those short-term corporate rentals that are fully furnished and offer amenities are incredibly expensive, and you want to do a DIY sublet or see if anyone’s got a spare room. But buying furniture is not only expensive, you only need it for two or three months. Renting it and bringing it back sounds feasible, right?

Turns out it’s a multi-billion dollar racket where the former situation is more common than the latter; and it’s an industry with little oversight that preys on people with no other options.

The concept of rent-to-own actually originated in Europe and the UK before it started appearing in the United States around the 1960s. The very first store to do this was Lotus Radio in the UK, the shop rented out radios in the 1930s under a “hire purchase” model with weekly or monthly rental terms. Lotus gave customers the option to renew their radio leases by continuing to make payments, or terminating by bringing the radios back with the option to make interval payments for a prescribed timeframe where they’d own them outright.

It wasn’t long before the concept made it across the pond and with different applications. Charles Loudermilk, Sr. opened Aaron Rents in 1955 after he borrowed $500 (about $2,900 today) to rent out 300 chairs that came from Army surplus. The company rebranded to Aaron’s but did not actually pick up on the rent-to-own model until the late 1980s, after seeing the success of Wichita-based Rent-a-Center that was founded in the early 1960s. Chair rentals for protests, church meetings, and other events were one thing, but the profit potential was seen in renting out home furnishings to people who otherwise couldn’t afford them, and this was before Craigslist.

Rent-a-Center basically kicked off after a customer said they’d been renting their washing machine for so long, that they could just own it outright at the end of the lease. Doesn’t sound too bad, right? Well…

This is an industry with pretty much nonexistent oversight, unlike the numerous checks placed on the financial industry. Very few state legislatures have any laws concerning conduct and terms for rent-to-own goods, but when they do such as the Illinois penal code? The state considers failure to return rent-to-own property within 10 days to be a class 4 felony. WHAT. Let’s be real, there is nothing earth-shattering about returning a bed or TV to Rent-a-Center a little late. It’s like returning those old Blockbuster videos: the late fees sucked, but you didn’t go to jail for it. Wait, this is America; OF COURSE they’re going to look for clever ways to send the poor to jail. Rather than laws that would protect consumers from usurious rent-to-own arrangements, they protect the companies renting them out.

But because it’s tangible property being rented, not something like a house, some basic consumer protection laws apply but not the Truth in Lending Act since a lease is not the same as taking out an installment agreement or store credit card. The Consumer Leasing Act also doesn’t apply, which means that rental centers can refrain from disclosing information about the product, like if it causes birth defects or injuries, and pile on tons of hidden fees while they’re at it.

So why would someone choose this? Why is it such a big industry if the furniture can’t be sold? Because credit checks are not required for rent-to-own arrangements, people with lower incomes and bad or no credit will choose this option regardless of how long they anticipate being someplace. In cases where the property gets returned, it also may not pay to buy that bed or TV if you don’t know where you’re going in six months and may not be able to easily sell what you have.

 

It’s like I said: furniture is a raw deal, and not everyone gets that happy ending where we order the perfect couch slipcover on Etsy after saving and saving for that DREAM COUCH. The furniture industry has some hidden tentacles dug into some pretty nasty things, even when it’s not experiencing record sales in a pandemic-fueled housing boom.

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