Rent-to-Own Contracts and Minnesota’s Usury Law

Rent-to-own or lease-to-own contracts allow the renter the option to purchase the property prior to the end of the lease. It can be attractive for both parties as it allows the renter to acquire the property when they may not have available cash and it allows the owner to collect income when they otherwise could not find an outright buyer.

Minnesota Statutes sections 325F.84, et. seq. applies to rental purchase agreements or “rent-to-own” agreements. It specifically applies to, “agreement[s] for the use of personal property in which all of the following apply:

  • The lessor is regularly engaged in the rental-purchase business;
  • The agreement is for an initial period of four months or less, whether or not there is any obligation beyond the initial period, that is automatically renewable with each payment and that permits the lessee to become the owner of the property;
  • The lessee is a person other than an organization; and
  • The lessee takes under the rental-purchase agreement primarily for a personal, family, or household purpose.

Minn. Stat. § 325F.84, subd. 8 (2014).

Usury Law

Minnesota’s Usury Law codified in Minnesota Statutes Chapter 334 sets limits on the amount of interest that can be charged on any particular type of debt. Chapter 334 also does not allow collection of interest that exceeds the statutorily allowed rate and renders some of these contracts with a higher rate invalid.

The elements of usury are:

  1. The loan of money or forbearance of debt,
  2. Agreement between parties that principle shall be repayable absolutely,
  3. Exaction of greater amount of interest or profit than is allowed by law, and
  4. Presence of intention to evade law at inception of transaction.

Miller v. Colortyme Case

In the case Miller v. Colortyme, Inc., 518 N.W.2d 544 (Minn. 1994), the Minnesota Supreme Court found that rent-to-own transactions are indeed consumer credit sales as defined by the Minnesota Consumer Credit Sales Act (“CCSA”). The court also found that rent-to-own contracts are also subject to Minnesota’s general usury statute.

In Miller, a company, D.E.F., Investments, Inc. doing business as “Renter’s Choice Home Furnishings,” (“DEF”) uses standard form contracts to lease consumer goods including furniture, televisions, appliances, etc. After the monthly or weekly term of each customer’s contract, the customer has an opportunity to elect to renew the contract with no additional consideration. In order to own the product, a consumer generally pays far in excess of fair market value. A few consumers brought a class action against DEF.

First, the court found that rent-to-own contracts were consumer credit sales. Then, the court also found that DEF violated the usury law. DEF argued they did not violate the usury law because the first two elements of usury were not applicable to its contracts and because the customer never incurred any debt or had to pay any principle. Although the court agreed with DEF’s assertions, it found that the first two elements of the common law usury test are met by operation of statute. The court stated,

The legislature’s decision to treat rent-to-own transactions as credit sales recognizes that although these transactions purport to be short-term leases, they operate in substance much like ordinary installment sales. Consumers who purchase goods through rent-to-own agreements may not incur debt, but they still implicitly pay interest in return for the ability to pay for goods over time. Moreover, rent-to-own customers may not have an absolute obligation to repay a principal amount, but their situation is analogous to that of ordinary buyers on credit in that they must either forfeit possession of a good or continue paying for it.


While rent-to-own contracts can be beneficial for both the renter and the property owner, they are highly regulated by multiple Minnesota statutes and therefore any rent-to-own contract should be drafted or reviewed by an experienced attorney.

This article was written by attorney Maureen A. Carlson.