PAPER CUTS/Judith Gorman

On Borrowed Time 

Over the past few weeks, I"ve been shopping around for a stereo system to replace the one that vaporized right around Christmas. The first place I checked was the back page of the Sunday New York Times Entertainment Section, where J&R Music World, the mother of all electronics discounters, regularly advertises.

At J&R, I can get a Panasonic 50-watt stereo shelf system with a 5 CD changer, dual cassette decks, timer, remote, and 24 AM-FM presets, for $129.99. Or I could go to RentWay, and get virtually the same thing, a 50 watt, 3 disc CD changer Philips shelf system at $16.99 a week for 78 weeks, for a grand total of $1,332.72. And I could really use a DVD/CD player. It"s $199.99 at J&R, and $12.99 a week for 78 weeks at Rent-a-Center, for a total price of $1,113.22.

Gee whiz, you"re probably saying, that"s a no brainer. Go for the least expensive item. That"s because you have a choice. For many people, there is no choice. They are unable to get a credit card because they have a bad credit rating or no credit history at all. They live in low income and minority neighborhoods where many traditional retailers refuse to operate. They are unemployed or self-employed, recently divorced, or don"t own their own homes. All of these factors force people to pay many times what an item is worth, at interest rates so staggering they make loansharking look like philanthropy.

The hook here is that everybody, that"s everybody who walks in off the street, is "pre-approved" by rent-to-own stores. As long as you keep paying. Miss a payment, and seven days later you lose not only the item you were "renting," but every dollar you paid towards its purchase.

Rent-to-own is one of many scavengers that feast upon low-income families, but it may be the only one that slides through a loophole in the federal consumer protection statutes. Since contracts signed between rent-to-own stores and purchasers are technically considered to be rental agreements rather than purchase or lease contracts, the rent-to-own industry has, to this point, been exempt from the interest rate disclosure provision of the federal Truth in Lending Act, as well as other safeguards against predatory lending practices.

Consumer advocates have long objected to this approach, arguing that rent-to-own arrangements should be considered credit sales, subject to the wide range of federal and state consumer protection laws. Individual states have attempted to close this loophole by enacting laws that currently vary from one state to another.

In July of 2001, the House Subcommittee on Financial Services met to "consider the merits of bipartisan legislation to establish uniform national standards for so-called rent-to-own transactions."

Two "Rent-to-Own Reform" bills are now pending before Congress, HR 2498, introduced by Rep. Maxine Waters (D.Calif.), and HR 1701, sponsored by Rep. Walter Jones (R.N.C.). Waters" bill is supported by the Consumer Federation of America, Consumers Union, the National Association of Consumer Advocates, the National Consumer Law Center, and the US Public Interest Research Group (PIRG), among others. Jones" bill is supported by the Association of Progressive Rental Organizations (APRO).

Couched in the usual Washingtonian legalese, which says one thing and means another, it takes a dozen readings to figure out that while both bills purport to give customers of rent-to-own stores federal safeguards, the final provisions of Jones" HR 1701 actually strip them away. HR 1701, if enacted, will effectively exempt the rent-to-own industry from many consumer protection statutes nationwide and simultaneously invalidate previously existing state laws.

HR 1701, Section 1011.A: Relationship to other Laws: "State Law: This title does not annul, alter, or affect, or exempt any person subject to the provisions of this title from complying with, the laws of any State with respect to rent-to-own transactions, except to the extent that those laws are inconsistent with any provision of this title, and then only to the extent of the inconsistency." What this provision actually means is that this bill will supercede state regulations, and therefore nullify any state consumer protection laws for rent-to-own customers that are more stringent than this new federal statute.

HR 1701, Section 1011.B: Consumer Lease Provisions of the Truth in Lending Act: "Chapter 5 of the Truth in Lending Act, relating to consumer leases, shall not apply a rent-to-own transaction except the lease or sale of a motor vehicle ..." This provision effectively denies rent-to-own customers the safeguards against predatory lending practices currently available to all other consumers under federal law. It will legitimize unlimited interest and prohibit government from mandating disclosure of the Annual Percentage rate.

The rent-to-own industry is hoping that public is sufficiently distracted by the war on terrorism to let this bill pass unnoticed. In its web newsletter, Rent-To-Own Online, the following message was posted: "In previous (Congressional) sessions where HR 1701 was discussed, negative articles in the national press were plentiful. This time around, things are relatively quiet ... knock on wood."

Make some noise. If HR 1701 passes both houses of Congress, rent-to-own customers will be denied the protections afforded all other consumers under federal law, and in addition, will deny them the protections currently available under state laws. Call or write your Congressman and voice your objections to HR 1701.

Judith Gorman is a journalist based in Vermont.

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