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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).
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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).
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