It has long been a pillar of rent-to-own advertising to proclaim “No Credit Check” or something similar. The pitch is, if you are worried about your credit rating, you can do business with RTO without fear or concern, because we aren’t going to check your credit score before renting you a TV. The pitch has appeal because a lot of Americans, tens of millions of them, are either “credit-challenged” or have too little verifiable experience in the credit world to have a credit score. These folks are known in the trade as “thin file” or “no file” consumers. And, trying to buy a house, or a car, or a major appliance, or even some clothes in the department store on credit and getting turned down is not only embarrassing, but also can wreak havoc with one’s best-laid financial plans. So, “No Credit Required” definitely has a place within the marketing world and has served rent-to-own well over the years.
Not checking credit has never meant that dealers are renting blindly to anyone and everyone, even though in some stores, it might sometimes seem that way. Dealers do want to know to whom they are renting their electronics, appliances, furniture, etc. Chances are, someone in their store has met the customer who has come in to shop. Beyond looking the customer in the eye, the store will verify the customer’s identity, where they live, that they are employed and for how long, and other details that vary by dealer – usually gleaned from the customers themselves, then verified with calls to landlords, employers, and personal references. Careful attention to the information submitted in a rental application has obviated the need to check credit on potential customers.
But that may be changing. The same approach is not commonly at play in the virtual RTO realm. Virtual rental dealers are doing business with complete strangers, often several states away, and they need some sort of process for deciding to whom to rent and how much to rent to them. These dealers are running credit on their would-be customers, albeit typically by conducting a “soft credit pull.”
This type of credit check is not part of a consumer’s application for credit; that kind of credit check is considered a “hard credit check.” It occurs when a consumer applies for some sort of credit, be it a home or auto loan, a new credit card, an installment loan, a retail installment or conditional sale, or some other type of borrowing. A hard credit check will yield a credit score, and the check itself will most likely lower the applicant’s score by a few points for up to two years. This is because applying for credit means the consumer needs to borrow some money and intends to go deeper into debt than they already are; in the credit arena, adding debt increases the risk of over-extension and, thus, the lender not getting repaid in a timely fashion.
A soft credit pull is not part of the loan-application process. Rather, it is an inquiry by a creditor – or some other entity authorized to run credit – that lets the inquirer see how the consumer is managing his financial affairs without there being an actual application for more credit. Landlords can do it, potential employers can do it, insurance companies can do it, and, yes, RTO businesses can do it. They can examine a consumer’s credit history to get a better sense of who they are doing business with. Importantly, a soft credit pull will not affect a consumer’s credit score, though some credit-reporting agencies (CRAs) do note when soft credit pulls are made.
Gone are the days when the big three credit-reporting agencies controlled all the credit information about U.S. consumers. Today, in addition to the big three are scores of subprime credit-reporting agencies in the business of collecting the vast amounts of consumer information culled from smart phones and internet usage and other sources, and selling it to interested parties allowed by law to look it over. The Consumer Financial Protection Bureau, which now has regulatory jurisdiction over CRAs, publishes a list of alternate CRAs with descriptions of the kinds of consumer information they collect and sell; you can see it yourself at https://files.consumerfinance.gov/f/documents/cfpb_consumer-reporting-companies-list_2021-06.pdf.
In today’s world, there is so much information so readily available about the financial habits of consumers, rent-to-own dealers might want to consider changing their advertising and running some soft credit pulls on new rental applicants.
Ed Winn III serves as APRO General Counsel. For legal advice, members in good standing can email legal@rtohq.org.
