In Texas and Florida, you might go to jail for failing to pay for your furniture. Rental companies in the state had successfully lobbied for a little-known law that allows rental companies to press criminal charges up to felony theft for failure to pay for a rental property. A dispute over a $3000 bed set can turn into six months of jail time for the debtor. The Texas Tribune and NerdWallet found rent-to-own companies have pressed charges against thousands of customers in Texas and in other states.
Customers faced with these charges are allegedly that they were misled. Their understanding was that the rental agreements were installment payments to purchase the furniture. An agreement to pay $8,000 for a $5,000 piece of furniture, only to return the furniture to the company, is absurd. The companies claim they only want their property back under the terms of the lease.
One of the biggest concerns with public policies like these is whether the agreement is an adhesion contract. Adhesion contracts are standardized agreements that are on a “take it or leave it” basis. Adhesion contracts are often scrutinized because their standardized nature causes people to read them less carefully than other agreements. Rental contracts are often adhesion agreements when it comes to criminal charges. Nobody expects to get arrested because they signed an agreement to rent a chair. If customers don’t read the agreement and fully understand what it is they are agreeing to, they may find themselves blindsided when the police show up.
The use of criminal charges to collect rental property is unnecessary because all states have civil procedures for debt collection. Civil laws provide a wide array of tools for creditors to get their money back. Liens, wage garnishment, and civil suits are available to those who are owed money. Pressing criminal charges is a means of avoiding the usual due process of debt collection.
However, anyone who’s had to collect debt knows that it can be a long and expensive process. To obtain legal remedies like wage garnishment, the creditor must initiate a lawsuit and then convince a judge of one’s position. Calling the police would seem like a cheap and quick solution in comparison.
What is the Future of These Types of Contracts?
On one hand, it’s extreme and abusive to pursue criminal charges just because someone signed a piece of paper. On the other hand, the rental companies do have a right to recover their property and threats of criminal action are probably more effective than the use of liens. One possible solution would be to require rental companies to explicitly inform the customer that they may be subject to criminal charges in the event they fail to pay or return the rental property.
Customers would have notice that these clauses are in their contracts and could decide whether they wanted to do business with a company that would press criminal charges for missing a thousand dollars of property. If rental companies are forced to disclose potential criminal liability in their agreements, it might increase competition between companies that use the police and those that do not. This would be a win for both customers and the free market.