A Best Buy program gets shoppers to pay twice the list price on big-ticket items

Best Buy last spring began offering a splashy lease-to-own program to customers who'd been rejected for its store credit card. Progressive Leasing, executives said, would help cash-strapped shoppers buy big-ticket items they couldn't otherwise afford.

"This is a great offer," chief executive Corie Barry said in an earnings call last year. "It's great for our brand. It's great for our customers." It also could bring in tens of millions of dollars in revenue each year, internal documents show.

But many store and corporate employees say the program has become polarizing; they contend it preys on the chain's most financially vulnerable shoppers, who often end up paying twice the list price for electronics, appliances and mobile phones.

Participants are required to pay a one-time $79 fee and allow Progressive Leasing to access their checking accounts for the payments - timed to the frequency of their paychecks - for 12 months. By the end of the year, they've paid 2.09 times the original purchase price, according to interviews with customers and employees, and leasing agreements obtained by The Washington Post. Early repayment can lower the final cost, though the $79 fee is nonrefundable.

"It feels abusive and gross," said a former assistant store manager who was there for the program's launch. He spoke on the condition of anonymity because he is still on the company's payroll. "You look at the terms and we are charging more than $2,000 for a $1,000 product."

Matt Furman, a spokesman for the Minneapolis-based company, said the program provides a valuable service. Most consumers use it to buy computers, major appliances and mobile phones.

"If it were not for a lease-to-own program at our stores, many of these individuals would be making these purchases from rent-to-own retailers or using payday loans," he said. "Our view is that these are clearly poor alternatives."

Tens of thousands of Best Buy customers have used Progressive Leasing more than once in the past year, he said, noting that it is "very common" for shoppers to pay off their purchases within 90 days - a threshold that confines the final cost to the $79 fee and purchase price.

Best Buy is among a growing group of retailers partnering with outside firms to offer delayed-payment and lease-to-own programs to attract younger and lower-income shoppers who might not have bank accounts or good credit. Target, J. Crew, H&M and others are partnering with companies like Affirm, After Pay, Sezzle and Klarna on such programs, which experts say have picked up in the last decade as new credit card accountability rules have made it more difficult for consumers - particularly those with spotty or no credit histories - to qualify for credit cards. Many of these programs don't charge interest or fees right away, though that can change if consumers fall behind.

Progressive Leasing, they say, signals a new extreme in the way retailers do business. The program - which is owned by rent-to-own furniture chain Aaron's - essentially buys the product and leases it to the customer. Best Buy gets paid right away, while Progressive Leasing takes on any risk of nonpayment. The program is offered at more than 30,000 stores by some of the country's largest retailers, including Lowe's, Big Lots and Kay Jewelers.

"It's a very controversial model with very, very high fees," said Ted Rossman, an industry analyst at Creditcards.com. "But it's becoming a huge business for retailers at a time when so many bricks-and-mortars are struggling."

In 2018, Progressive Leasing reported $2 billion in revenue from 1.6 million leases. Its target market, the company says on its website, is the 35% of Americans with subprime credit scores. Nearly 40% of Americans don't have $400 to cover emergency costs, according to the Federal Reserve.

Best Buy, which has about 980 U.S. stores, offers Progressive Leasing in 45 states and plans to make the program available online this year. (It is not offered in Wisconsin, New Jersey, Wyoming, Vermont and Minnesota, which have strict laws on rent-to-own contracts.) Analysts at UBS estimate that the arrangement could generate much as $4 billion a year for Best Buy, which had $42.9 billion in revenue in 2018. The company reports fourth quarter earnings Thursday morning.

Barry said in an earnings call last year that the program was having "a positive impact" on sales, but did not provide specifics. Roughly 65% of consumers who used Progressive Leasing were new to Best Buy, or had not shopped at the company in the last year, she said.

Amanda Stevens, 40, recently used Progressive Leasing to buy a Ring doorbell, security camera and Nintendo Switch at Best Buy. She said she's used the program before - to buy a refrigerator at Lowe's and two fireplaces and a bed at Big Lots - and likes the ease of weekly payments that are automatically deducted from her bank account. This time, she plans to pay off her purchase using the money from her tax return.

"I like it," said Stevens, a cashier at a big-box store in Farmington, Maine. "Who has that much cash on them? Certainly not I."

On online forums and social media, Best Buy employees referred to the program as "regressive leasing" and shared memes comparing the retailer to payday loan sharks. Some employees said they had shared their concerns with management, but were told that the program was lucrative for the company.

"The way Best Buy wants us to push this program is troubling," said a mobile specialist in Lansing, Michigan, who spoke on the condition of anonymity because he feared reprisal. "You're targeting a population that's already down on their luck. Progressive Leasing is like saying, 'Hey, you're already in a bad situation. Let's make it worse.'"

The program, employees said, builds on Best Buy's Citibank branded credit card, an integral part of its business that brings in one-quarter of total sales.

Data show that card-holding consumers tend to buy more, and spend more frequently, than other shoppers. Progressive Leasing, employees said, is an attempt to recreate that model among lower-income shoppers who don't qualify for the Citibank card.

"No employee wants to tell a customer they've been declined for financing," Barry told investors in September. "Up until recently that was literally the only option we had. Now customers can hear about a second option to get the products and services they want from who they want, meaning a big win for all of us."

But some employees remained skeptical. "It can help some people but it's very misleading for others," said Joshua Howard, who until last month worked in the premium home entertainment department of a Best Buy store in Memphis. "I felt really bad offering it."

It was difficult, he said, to "fully explain what the customer was getting themselves into," even though he had firsthand knowledge of the program. Three years ago, he and his wife bought a $700 mattress at Mattress Firm using Progressive Leasing. They planned to pay it off within 90 days, but miscalculated. When he called on day 91, the company told him there was nothing they could do: He ended up paying $1,400.

"Ever since then it's left a bad taste in my mouth," he said. "Very few people actually benefit from this."