Rent-to-own News - Alleged rental scam a heads up to RTO dealers

APRO Legal Counsel Ed Winn III.

Two rental store employees in Columbus, Indiana have been indicted on charges of defrauding the federal government in conjunction with an alleged scheme to rent merchandise to soldiers on temporary leave at a base and then have the soldiers apply for reimbursement from the government for the rental expenses.

There is a program for military personnel on temporary assignment to get reimbursement for certain living expenses while away from the home base.  Reimbursement can be for living expenses, apartment rental and the like, and also for furniture rental on a temporary basis.

However, the regulations specifically provide that reimbursement is not available for rent-to-own products, as the government apparently only wants to reimburse soldiers for the temporary use of things, not for the purposes of helping soldiers acquire those things. So, there is no particular reason that RTO stores could not rent to soldiers on temporary assignment on a rent-to-rent basis.

The store moves some product, the soldiers get to live with some nice stuff for a while, and the government reimburses them for their rental expenses. In fact, a number of rental stores on and around military bases have just such programs in place. 
 
However, at a base in Indiana, soldiers apparently started out renting stuff using standard RTO agreements. But when they learned about the reimbursement regulations concerning RTO agreements, they went back to the store and got the store to rewrite the contracts as rent-to-rent agreements to receive reimbursement.

That might have been okay had the agreements been genuine rent-to-rent agreements. However, the government is arguing that those RTR agreements were bogus and that the store quit collecting rental payments from the soldiers after a while, effectively transferring ownership of the merchandise to the soldiers in violation of the military’s regulations.

The government is arguing that there were several hundred thousand dollars’ worth of merchandise rented out under sham rent-to-rent agreements, and the employees involved in those agreements are now facing criminal charges.
 
Last fall, a colonel at the base committed suicide perhaps because he was involved in the rental program. It may have been the colonel who advised the soldiers as well as the store employees how to set up the paperwork to qualify for reimbursement. 
 
Dealers are cautioned that if they are involved with rent-to-rent transactions with the military for the purpose of allowing soldiers to qualify for reimbursement of their rental expenses, the store needs to treat those transactions differently from traditional RTO agreements.

Rent-to-rent means that there is no ownership option and the rental customer never gets ownership of the rented merchandise.  It seems that the store in question simply quit trying to collect rent from the soldiers after a period of time and that is when the scheme began to fall apart.

If the store had continued dunning the soldiers for payments, that would be evidence that the store was treating the transactions properly, as true rent-to-rent transactions. It may go against the instincts of rental store employees who want to urge their customers to keep up their payments and get ownership of their rental property, own nice stuff and build up their credit, but in this narrow case of military reimbursement for living expenses, that instinct has caused serious problems for the employees involved.

edwinn@mwvmlaw.com