Predatory Lending: Rent-to-own

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Problem: The predatory rent-to-own industry promises consumers the American dream of ownership. "For only 78 weekly payments of $10, you, too, can own this television." The industry doesn't tell you that the that the effective interest rate on that loan, however, is 220%APR with $560 in iterest and finance charges.

Many states have enacted industry-friendly laws that allow the rent-to-own industry to deceive consumers by disguising their loans as rentals. But a few states enforce tough consumer protection laws. New Jersey PIRG has helped defend its strong law for years.

Unable to win in the state legislatures, the RTO industry has asked Congress to preempt, or over-ride, those strong state consumer protection laws and replace them with a weak industry-friendly federal law.

Background: The multi-billion dollar rent-to-own industry (Rent-A-Center, Rentway and others) sells televisions, appliances, computers, jewelry and furniture by making consumers loans payable on a weekly or a monthly basis. A television with a market value of $220 typically requires 78 weekly payments of ten dollars, or a total of $780. A customer who rents-to-own, or purchases, that television has paid $560 of finance charges at an imputed annual percentage rate (APR) of 220%. But the industry contends it does not sell. It claims it only rents, because if a consumer wants to stop making payments, he or she can do so and return the goods without further payments. RTO stores generally refuse to comply with state usury ceilings or interest rate disclosure laws such as the Truth In Lending Act. The industry, over the years, has also been accused of selling used goods as new, tacking on deceptive add-on fees and worse, bullying and sometimes illegal tactics when consumers are late with payments.

Over ten years ago, RTO operators convinced about 45 states to enact weak legislation that treats rent-to-own as a lease. Yet, several states -- backed by consumer groups -- insist on treating rent-to-own sales as small loans, requiring compliance with usury ceilings (New Jersey), APR disclosures (Vermont), or other consumer protection provisions (Minnesota, Wisconsin, North Carolina).

Solution: Congress should reject proposals endorsed by the predatory rent-to-own industry -- such as HR 1651 (Jones-R-NC) and S 603 (Landrieu-D-LA)-- that would over-ride or preempt stronger state consumer protection laws. If Congress acts at all, it should enact legislation such as HR 2498 (Waters-D-CA) from the 107th Congress, which would treat rent-to-own as a sale, not a lease and would allow stronger state laws to stand. HR 2498 would also have required a consumer to pay a penalty for the privilege of cancelling the contract and returning the goods at any time, which is the primary aspect of rent-to-own that makes it different than other loans.

Legislative Update: While so far neither the House nor Senate have taken any action, even in committee, on either HR 1651 or S 603, the bills have amassed a powerful array of co-sponsors, due to aggressive lobbying by the industry. Disappointingly, generally pro-consumer members such as Senate Byron Dorgan (D-ND) and Paty Murray (D-WA) and Senate Banking Committee Chairman Richard Shelby (R-AL) have co-sponsored S 603.

PIRG opposes HR 1651 and S 603 in the 109th. These bills are intended for one purpose only: to immunize the rent to own industry from stronger state consumer protections. PIRG supports HR 2498 (107th Congress).

More legislative history in RTO Section of Blog archives
How You Can Help: Urge your Senators to oppose S. 603 (Landrieu-D-LA). Urge your Representative to oppose HR 1651 (Walter Jones-R-NC).

Letters: Consumer, civil rights and labor groups send letters opposing S. 884 (Sen. Mary Landrieu, D-LA) and HR 996 (Walter Jones, R-NC). These bills from 108th Congress are identical to S. 603 and HR 1651. Attorneys general letter opposing HR 1701, nearly identical predecessor bill.

PIRG Reports: 2002 press backgrounder, focusing on industry campaign donations.

1997 PIRG National rent to own survey and news release.

Testimony: Ed Mierzwinski of U.S. PIRG and Margot Saunders of NCLC, before Senate Banking Committee, 17 June 2004.

Margot Saunders, NCLC, for PIRG and others, House Financial Services Committee on nearly identical predecessor bill, HR 1701 on 12 July 2001

Links: New Jersey Consumers League main RTO page and RTO Rap page.