September 6 is
the day scheduled for a markup vote which may live in infamy
in the U.S. House of Representatives. HR 1701 would legalize
unlimited interest for rent to own stores. Worse yet, the bill
prohibits and gags states and the Federal Reserve
Board from telling consumers they are being charged interest
at 100% to 300%! The bill prohibits government and law enforcement
from requiring disclosure of the annual percentage rate at rent
to own stores!
The annual percentage rate is the "yardstick" of credit comparison. All banks and credit sellers, such as Sears, have been disclosing the APR to middle class consumers since 1969. But the special interest lobbyists who wrote HR 1701 think that rent to own customers, the urban poor, should be treated as second class citizens. No APR disclosure for them! Telling poor and minority consumers they are paying 100% to 300% interest would spoil the racket. If the contract disclosed 300%, who would sign it? The best scam is one in which the victim doesn't know he has been taken. That's rent to own.
HR 1701 is unaminously opposed by consumer groups such as the Consumer Federation of America, Consumers Union, U.S. Public Interest Research Group, the National Consumer Law Center, and Consumers League of New Jersey. The Attorney General of Wisconsin testified against this bill. Consumers League of New Jersey published the statement which appears on page two of this newsletter.
support the real RTO reform bill, HR 2498, introduced by Rep.
Maxine Waters. HR 2498 would mandate that rent to own customers
be told the annual percentage rate, and that rent to own must
obey federal consumer protection laws (not be given an unwarranted
N.J. Representatives Marge Roukema and Mike Ferguson sit on the House Financial Services Committee. New Jersey is watching how they vote, because HR 1701 hurts New Jersey. Our state Superior Court has three times ruled that rent to own's everyday operations violated the N.J. criminal usury law (setting a 30% maximum) or the N.J. Consumer Fraud Act or the N.J. Retail Installment Sale Act. HR 1701 forbids N.J. Judges from protecting N.J. consumers from RTO scams.
HR 1701 hampers government regulation. The New York City Consumer Affairs Dept. on August 23 charged Rent-a-Center with price gouging. That RTO store was setting phoney cash prices of $1,949.25 on 32 inch TVs worth $599. New York law then allows RTO to set a credit price of double the cash price. So RTO wanted to double $1,949 to $3,898 to buy the $599 TV! New York law enforcement efforts like these would abruptly end if HR 1701 becomes law. HR 1701 preempts even the minimal protection of New York's RTO price ceiling. With HR 1701, anything goes.
HR 1701 handcuffs law enforcement. HR 1701 would make Congress an accomplice in fleecing the poor in the rent to own scam.
Consumers League of N.J.
Opposes H.R. 1701:
Rent to Own stores sell $200 TVs for $1,000, and pretend there is no interest.
Rent to Own stores conceal interest rates of 100% to 300% Annual Percentage Rate.
To conceal the interest rate is deceptive, pure and simple, a consumer fraud. No one would agree to a 300% contract, if he knew Rent to own charged 300%.
Rent to Own stores pretend to help minorities and the urban poor, but Rent to Own discriminates against the poor, and treats them as second class citizens, as suckers worthy only to pay 300% interest, instead of the 20% interest normal people pay.
A person who can afford to pay $12 per week at rent to own, can afford to pay much less at Sears- $12 per month at Sears, and buy five TVs for $1,000, not one at Rent to own.
H.R. 1701 scams the urban poor by concealing from them the loanshark interest rates Rent to Own charges. The bill cruelly denies the poor any disclosure of the Annual Percentage Rate, and then prevents any States from blowing the whistle as well. The bill preempts any pro- consumer state laws to mandate disclosure of the Annual Percentage Rate, or to regulate rent to own stores.
What would real Rent to own reform include?
1. Congress should mandate that Rent to Own disclose the Annual Percentage Rate.
2. The APR should be capped at 30% (as in New Jersey) to prevent loansharking.
3. Close the "Cash price" loophole (HR 1701 allows RTO stores, which do not sell items for cash, to hide extra interest in inflated "cash" prices)--Instead Congress should define RTO Cash Price as the fair market value which competing area merchants sell similar goods for cash.
4. Permit the States to enact consumer protection laws which protect the consumer.
In sum, Congress should enact consumer
protection laws, and enforce the law.
On July 26-27, the U.S. Senate Banking Committee, under the leadership of Senator Paul Sarbanes held extensive hearings on the problem of predatory mortgage lending.
Irv Ackelsberg, managing attorney at Community Legal Services, Philadelphia, testified on behalf of CLS and the National Consumer Law Center, the Consumer Federation of America, Consumers Union, the National Association of Consumer Advocates and U.S. Public Interest Research Group. We will borrow many of Irv's points to illustrate the problems of predatory lending.
Predatory mortgage loans, while not all alike, typically will be based on the amount of equity in the home, not whether the consumer can afford to pay the mortgage. For the inevitable default, the lender plans foreclosure (with little risk) or refinancing the homeowner to an even worse mortgage. Predatory mortgages have very high fees and points, which are financed. So for example, to get an actual $70,000 in cash, the predatory lender signs the consumer to a "$77,450" note. The $7,450 difference would be 5 points ($3,850), $1,400 closing costs, and $2,200 for credit insurance. Predatory loans are often originated by mortgage brokers and home repair contractors. These brokers get paid commissions which increase if they can get the consumer to sign higher interest and higher fee mortgages. The lender gets its fees up front, then sells the loan to another lender, with little care if the homeowner actually pays.
When the consumer defaults, then brokers are all too happy to refinance, because they get to charge all the same fees over again. So on the second round, the loan may
$84,145, with the consumer getting no new cash. On a second refinance,
the loan may increase to $91,107. Mr. Ackelsberg points out that
by the second refinance, the homeowner has lost $59,839 of the
equity in his home. Senior citizens are a favorite target of
predatory lenders, since they have a lot of home equity. Homes
which seniors paid for over thirty years, can be lost in 2-3
years once the senior is signed to predatory mortgages.
Consumer Law Center and the National Association of Consumer
Advocates will hold its acclaimed Consumer Litigation Conference
in Baltimore on April 27-29. Keep up with current law and earn
CLE credits. Some of the leading consumer attorneys in the country
will be there. More information is available at www.nclc.org
or phone 617-523-8010.
I wish to become a member of the Consumers League of New Jersey, and/or the Consumers League Education Fund.
Annual dues of $20 include a subscription to the Consumers League Newsletter. Contributions to the Education Fund (only) are tax deductible. Thank you for your contribution.
________Consumers League Millennium Circle $2,000
________Consumers League Life Member, $1,000
________Consumers League Century Club, $100
________Consumers League of New Jersey, annual dues $20
________Consumers League Education Fund, $20
________Newsletter subscription only, $10 (not a member)
________Additional donation to help CLNJ: Enclosed is:
_____$1,000,_____$100, _____$50, _____$25, _____other.
CITY, STATE ZIP
we have a simple plea:
if you can, please send us $100 for our next 100 years!