The nation's largest rent-to-own business, Rent-A-Center, Inc. (RAC), will pay more than $7 million in restitution to thousands of California customers under a settlement with Attorney General Bill Lockyer. The settlement, finalized today by the San Francisco County Superior Court, resolves a consumer protection lawsuit brought by Lockyer.

"Our economic system is not driven solely by the profit motive," said Lockyer. "To function properly, businesses must deal fairly and honestly with consumers. Rent-A-Center flouted this fundamental principle, violated state law and harmed consumers. This settlement not only will provide restitution to thousands of victims, but also ensure the company reforms its business practices to conform with the law."

The settlement resolves a lawsuit, filed simultaneously with the settlement, that alleged RAC failed to disclose the true cost of its rent-to-own program to California consumers. Additionally, RAC engaged in deceptive advertising in marketing and selling memberships in its "Preferred Customer Club," according to the complaint.

The settlement requires RAC to make full or partial refunds to thousands of California consumers who bought Club memberships, or who rented or purchased electronic merchandise, appliances, or computer systems from RAC on or after November 1, 2004. Lockyer's office estimated the restitution will total more than $7 million. RAC also will pay $750,000 in civil penalties.

San Francisco County Superior Judge Peter J. Busch on Thursday approved the settlement. The court today formally entered the judgment reflecting the settlement.

RAC rents and sells new and used household merchandise, including televisions, computers, furniture and appliances.

Customers typically sign a self-renewing weekly or monthly lease for the rented merchandise. The lease agreements include an option to purchase, either by continuing to pay rent for a specified period of time, or by early payment of some specified portion of the remaining lease payments.

Lockyer's complaint alleged RAC, in violation of state law, engaged in unfair competition and illegally misrepresented the cash price of certain merchandise.

The complaint also alleged RAC misrepresented the benefits and terms of its Club membership in numerous ways. The misrepresentations included: falsely claiming to provide an extended warranty, insurance, or service contract for rental merchandise; and telling consumers they would receive up to $500 in grocery discounts, without adequately disclosing that to obtain the maximum discounts consumers had to pay RAC more than $100 in additional fees.

Aside from the monetary payments, the settlement imposes reforms of RAC's business practices. These "injunctive relief" provisions include:

• requiring RAC to comply with California's Karnette Rental-Purchase Act in all rent-to-own transactions;

• prohibiting RAC from charging prices that exceed the maximum amount allowed by law; and

• requiring RAC to clearly disclose all terms of its Club membership, including any costs, benefits, services, features, discounts and cancellation rights.

In addition to the $7 million in restitution, RAC will deposit more than $7 million into a special consumer protection trust fund. The additional $7 million comes from a prior, private lawsuit brought against RAC, and represents restitution funds left undistributed to consumers in that case.

The $7 million deposited into the special fund will be used solely to enforce consumer protection laws, and to protect California consumers in the areas of consumer lending and finance, debt collection, and the sale and lease of consumer goods or services.

RAC is based in Plano, Texas and operates 2,880 stores in all 50 states. In 2005, the company's revenues totaled $2.34 billion.