Consumers League of New Jersey

Volume 61, No. 3 . . . . . .Founded in 1900 . . . . . .November 1998

Bankruptcy Reform Misses

In a close call for consumers, the U.S. Congress failed to reach agreement on two bills aimed at denying bankruptcy relief to middle class debtors. Unfortunately, the special-interest creditor lobby will be back next year with similar demands.

The House and the Senate passed different bills. Both contained some outrageous ideas: both would force impoverished consumers to crowd into the offices of consumer credit counselors, in futile efforts to work out payment plans. If this ever passes, the credit counselors will rarely be interviewing their target clientele (persons who want and can afford to make payment plans). Both bills would have tried to force consumers into bankruptcy Chapter 13 payment plans. To some extent, both bills would have made these payment plans less likely to succeed, by increasing the kinds of debt which must be paid in full. As far as we can tell that is exactly what the lenders want: first try a payment plan, then be thrown out of Bankruptcy Court protection.

The Senate bill had some good ideas (detailed in our September Newsletter) to hold the banks accountable for their promiscuous credit card lending. These good ideas were trashed in Conference where radical House members prevailed over moderate Senators. The Conference went nowhere when the Democratic Senators, including the sponsor, were excluded from any input into the final deal. So the Senators threatened filibuster, and the President threatened a veto, and the bills died for 1998. However, consumers must fight the same battle again next year.

Rent to Own Bill Released—
100% Interest Threatens Poor

The Assembly Consumer Affairs Committee led by Jeffrey Moran, released A.1097 (S.1343), a bill to make the State Government of New Jersey an accomplice in fleecing the customers of rent to own stores. Consumers should call their state senators and assembly members and ask them to oppose A.1097/S.1343. Editorials in The Record and The Asbury Park Press have denounced these bills as ripoffs.

The choice is simple: the A.1097 formulas would permit rent to own to charge poor consumers more than 100% interest every time. (See chart on p2). In contrast, pro-consumer bill A.294/S.1491 limits rent to own to N.J.'s 30% criminal usury ceiling, which legitimate merchants obey. So the choice is stark, shall the poor be charged 30% or 100%? Shall the poor be treated equally with the middle class, or suffer peonage (debt slavery) with rent to own?

Consumers League again calls upon Governor Whitman and Attorney General Peter Verniero, as our state's top law enforcers, to announce your opposition to A.1097. Your silence in the 1998 hearings on rent to own is most disturbing. CLNJ calls on Peter Verniero to enforce New Jersey's criminal usury law. Since when do politicians create exceptions to the criminal usury law? Three court cases held that rent to own violated the N.J. Consumer Fraud Act. What are you waiting for?

CLNJ believes that government exists to protect consumers, not to fleece them.
(More on pages 2 and 3).

Page 2

 Governor Whitman, Attorney General Verniero and State Government must choose:

<>Protect the poor with the 30% criminal usury law, as S.1491/A.294 does, or

<>Fleece the poor with over 100% interest in rent to own sales, as S.1343/A.1097 does:

The unfair formulas in S.1343/A.1097
would permit Rent to Own to charge interest rates well over 100% APR:

The Unconscionable Choice: Fleece the poor with S.1343/A.1097:

If Cash Price were equal to fair market value, then that amount were doubled for the credit price, the MINIMUM interest rates will be:

Fair Market Value:

A $250 TV

"Cash Price"

Total of Payments:

(Double the cash price, as per bill S.1343/A.1097)

Months Annual
$250 $250 $500 18 months 103%
$250 $250 $500 12 months 152%
$250 $250 $500 6 months 291%

Bill S1343/A1097 does not specify the length of the contract: any number of months would be allowed under this loophole! So conceivably the interest could be collected in 6 months, or less.

The results are even worse under several S.1343/A.1097 formulas,
which allow the "Cash Price" to be padded artificially:

First formula: Manufacturer's Suggested Retail Price (20% higher than FMV),
then double that for the credit price
$250 $300 $600 18 months 136%
$250 $300 $600 12 months 203%

Second formula: Double the Acquisition Cost plus shipping for "Cash Price,"
then double that for credit price
$250 $480 $960 18 months 247%
$250 $480 $960 12 months 369%

The Better Choice--Protect the poor with bill A.1491/A.294 (30% ceiling)

New Jersey's CRIMINAL Usury Law allows a maximum of 30%:
$250 $250 $314 18 months 30%

What would you pay at Sears or Tops?
$250 $250 $291 18 months 20%

Page 3

Assembly Heroes and Zeroes

Consumer heroes at the Assembly Hearing on rent to own were Assemblywomen Nia Gill and Loretta Weinberg, who argued and voted against the anti-consumer A.1097. Ms. Weinberg deftly refuted the claim that the rent to own industry is mainly "renting" goods short term. She pointed out that what A.1097 does is to legalize the "OWN" in rent to own: the entire point of the bill is to permit sales at usurious rates. Asm. Anthony Impreveduto got a RTO operator to admit that he sold $400 washers for $900. So Asm. Impreveduto said: "Then it's true!" and he asked "Isn't 30% interest enough for anyone?"

The Assembly zeroes voting for A.1097 were led by chairman Jeffrey Moran, and included Asm. James Holzapfel, Asm. Michael Arnone, Asm. Joseph Azzolina, and Asw. Barbara Wright.

What's Next?

Bill A.1097 may be taken up by the full Assembly any time Speaker Jack Collins posts it. In the Senate, the bill is in the Commerce Committee with Chair Gerald Cardinale. Consumers ought to let their representatives know we do not want New Jersey Government to fleece our poor and urban rent-to-own customers. No one chooses 100% interest voluntarily. In fact, no RTO customer even knows he is paying 100% interest: there is no disclosure of the Annual Percentage Rate, which is deceptive in itself. True reform in rent to own would mean: 1) disclosure of the Annual Percentage Rate, 2) the APR must be calculated using the Fair Market Value as the Amount Financed (not some phoney inflated price), and 3) the APR may not exceed the 30% criminal usury limit.

Consumers and CLNJ Win Round
In New Jersey Supreme Court

CLNJ filed an amicus brief in the N.J. Supreme Court case Scott v. Mayflower Home Improvement. Madeline Houston and Melissa Totaro, Esqs. (Paterson) brought this case as a class action for 300 urban homeowners defrauded in the same way by a home repair company. They alleged that the homeowners had been signed to mortgages without being given the proper Truth in Lending disclosures, so they should be able to rescind the mortgages. If the homeowners cannot rescind, they may lose their homes in foreclosure, to banks financing the shoddy and fraudulent repairs.

Despite the same fraudulent scheme, the trial judge held that the case should not be a class action! Homeowners were supposed to get attorneys and fight 300 cases! Ms. Houston took an appeal. The Appellate Division did not want to hear it. Ms. Houston petitioned the Supreme Court.

Consumers League, along with the National Consumer Law Center and the national AARP, filed an amicus brief. Michaelene Loughlin, Loughlin & Latimer (Hackensack) represented CLNJ pro bono. CLNJ argued that this was the perfect case for a class action: all the consumers had the same issues of law in the same fraudulent scheme. If each homeowner had to hire an attorney, those homes would be lost to foreclosure. To have any chance of keeping their homes, the consumers needed to follow the advice of Benjamin Franklin, who on signing the Declaration of Independence said: "We must all hang together, or assuredly we shall all hang separately."

The Supreme Court granted the petition and told the Appellate Division to hear the appeal. The case will continue.

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$100 for 100 Years!

Consumers League of New Jersey will be celebrating our One Hundredth Anniversary in the year 2000!

As we count down to our second century,
we have a simple plea:
if you can,please send us $100 for our next 100 years!

Please send your membership application and your check to:
Consumers League of New Jersey
60 South Fullerton Avenue
Montclair, New Jersey 07042

Thank you!

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