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Volume 65, No. 2 . . . . . .Founded in 1900 - In Our Second Century! . . . . . .September 2002 Newsletter

Consumers League of New Jersey Newsletter
U.S. House Committee Votes To Legalize Rent to Own Abuse
Bad Bankruptcy Bill Nears Passage
Unbalanced Bankruptcy Bill Is Wish List for Banks
Five Billion Credit Card Offers Refute Industry Claims
Consumer Groups Denounce Bankruptcy Bill
Microsoft Is Selling Your Private Data
N.J. Predatory Lending Bill Advances
Consumer Litigation Conference: Atlanta, Oct. 25-28

U.S. House Committee Votes
To Legalize Rent to Own Abuse

The U.S. House Committee on Financial Services voted in July to release HR 1701, a bill to legalize the rent to own scam nationwide. This bill prohibits the Federal Reserve Board and all state legislatures from requiring RTO stores to disclose the annual percentage rate of interest! If our poor and urban citizens saw the words "150% annual percentage rate," that might be bad for RTO business. In contrast, Vermont requires RTO stores to disclose the interest rate. HR 1701 would gag Vermont, and all states from telling consumers the truth. The bill has no limit on rent to own interest. Rates of 150% to 300% are typical for RTO sales to the poor, treated as second class. In contrast, department stores charge 20-30%.

Rent to own sells TVs and furniture by pretending to be a lease. The only point of the alleged "rental" is to evade usury laws, such as New Jersey's 30% criminal usury law. The intent of HR 1701 is to preempt N.J. law and the unanimous N.J. court decisions which held that rent to own was really a credit sale, or was over the usury limit, or violated the N.J. Consumer Fraud Act or N.J. Retail Installment Sales Act. A class action against rent to own in New Jersey was settled for many million dollars of refunds to consumers.

In committee, Rep. Mike Ferguson (R., NJ) voted against a bill which hurts New Jersey. But the bill may come now to the floor of the full House. If this RTO bill is passed by the Congress, then the full weight of government would be thrown in support of a scam. Because RTO would have a tougher time in the Senate Banking Committee, some advocates think that RTO lobbyists will attempt to attach the RTO bill to the appropriations bills which Congress must pass by October 1. In prior years, RTO lobbyists tried to do this literally in the middle of the night.

True RTO reform would disclose the annual percentage rate, with a usury ceiling to protect America's poorest consumers. Consumers cannot be said to agree to a contract when the key term - the interest rate - is hidden from them. Poor and urban consumers should not be treated as second class citizens, with fewer disclsoures and worse credit terms.

Is Congress for Sale?
Bad Bankruptcy Bill Nears Passage

The Conference Committee in the U.S. Congress has agreed upon a single bad bankruptcy bill. Soon both houses may vote on this compromise, and send it to the President.

The bill ought to be called the "MBNA bill," because that credit card bank and allied lobbyists have purchased access to Congress via contributions to key members of Congress. First MBNA contributed $150,000 to the senate democrat committee chaired by Sen. Robert Torricelli, (D., NJ) bill sponsor. MBNA was the largest contributor to Pres. Bush's election campaign. MBNA also refinanced the overwhelming debts of Rep. James Moran (D, VA) into a convenient, low interest mortgage. Then he became a sponsor too. In a year which reeks of corporate abuse, accounting scandals, phoney transactions with foreign subsidiaries, incorporations abroad to avoid U.S. taxes, one might think that exposure of these scandals might lead to reform. But if the bankruptcy bill passes, it will instead be evidence that business as usual has returned to Washington. In Court, a payment to the Judge is called a bribe; in the halls of Congress, paying the decision-makers is called a campaign contribution.

In times of economic downturn, Congress should not punish those who have suffered loss of job, loss of health, loss of spouse. One study by the independent American Bankruptcy Institute estimated that only 4% of those who file bankruptcy have any ability to make a significant payment on their debts.

HR.333/S.420 places considerable obstacles in the path of anyone who wishes to file bankruptcy. Even the poorest citizens would have to make a useless trip to credit counselors, who would be doubtless swamped with unwanted business. A summary of parts of the bill follows on page two. Votes on this bill are expected imminently.
RENT TO OWN RAP is available for free as a MP3 song at the Consumers League website: www.clnj.org/rto_rap.htm

Consumers League of N.J. Newsletter, Page 2
Top of this document

Unbalanced Bankruptcy Bill
Is Wish List for Banks

S.420/HR333 has plenty of gifts for creditors, but few for consumers. All debtors would have to jump through a series of obstacles to declare bankruptcy. All consumers, no matter how poor, would have to go to credit counselors, to see if they could pay impossible payment plans. The consumers' tax returns would be given to the trustee in bankruptcy, and any creditor employee could peruse them - potential dangers to family privacy, bank account information, and identity theft. Much more documentation of past income and taxes would be required, the sort of papers which not everyone keeps. After bankruptcy the debtors would have to take a course in managing their finances.

The law of bankruptcy would be changed in unfair ways. The idea of HR 333 is to force debtors earning more than the state's median family income (above $47,000, for example) into Chapter 13 payment plans. But since Congress granted every wish of every creditor, payments would be much higher than current law. Instead of using a debtor's actual expenses, as now, debtors would be allowed fictional expenses on IRS lists. These IRS standards mean that debtors would be expected to make chapter 13 payments from money they did not actually have. So first the over median debtor is denied a regular bankruptcy, then he is denied a payment plan bankruptcy too. Catch 22.

To benefit GMAC and Sears, consumers would have to pay the full replacement price of goods not worth such amounts. For landlords, the bill makes it easier to evict tenants. For millionaire bankrupts in Texas and Florida, the bill allows them to keep a mansion purchased over 3 years before bankruptcy, unless they are convicted of certain crimes, in which case they keep $125,000. (In contrast, New Jersey has no state homestead exemption for anyone.)

To discourage attorneys from filing cases, there are penalties if the attorney files the wrong kind of case, or does not investigate his client's finances thoroughly.

Five Billion Credit Card Offers
Refute Industry Claims

If banks are losing their shirts to bankruptcy, one would expect that they would make fewer unsolicited credit card offers. Instead they are making more offers than ever. The Consumer Federation of America ( www.consumerfed.org ) on August 15 reported that the industry sent five billion unsolicited credit card offers in the year ending March 2002. That's 50 offers for every family in the USA. In contrast, in 1997, the banks sent out "only" 3 billion offers. More offers are in our mailbox for a very simple reason: credit cards are very profitable: Net after tax earnings as a percentage of outstanding balances increased from 2.13% in 1997 to 3.24% in 2001, which is a 52% increase in profitability.

The Consumer Federation reports three trillion dollars of unused credit on existing credit cards, about $30,000 per household. Thus the country is awash with actual and potential credit card debt. The banks want to punish the bankrupts for using the credit which the banks promiscuously offered.

The banks want to have their unlimited credit cake, and eat it too. Banks want to continue to offer unsound lending to all, but make the Bankruptcy Court their collection agency. More prudent public policy would be to force the banks to scale down their unsafe and unsound lending, and leave the bankruptcy laws as a safety net for consumers.

Consumer Groups Denounce Bankruptcy Bill

The UAW and Teamsters unions, women's groups have joined with consumer groups such as CFA, Consumers Union, USPIRG in urging a "no" on HR 333. The bill would encourage predatory lending and unsound lending. The bill hurts child support recipients. Travis Plunkett of CFA said: "Terrorist attacks, the recession and ongoing corporate scandals have all taken their toll on the economy and left many more families vulnerable to bankruptcy. Congress couldn't pick a worse time to make it more difficult for families to get back on track financially."

Consumers League of N.J. Newsletter, Page 3
Top of this document

Microsoft Is Selling
Your Private Data

Many consumers who signed up for free email at Hotmail.com, before it was owned by Microsoft, assumed that their personal data was safe. So did users of Microsoft's MSN, Hotmail, and the various "Passports:" which Microsoft urges Windows XP users to obtain, such as .NET Passport, Windows Passport. Those consumers would likely be shocked and surprised to discover that Microsoft has been "sharing" not only your email address, but also personal data such as your name, age, address, occupation, phone number, etc. with Microsoft's business partners who may wish to communicate with you. And once your private information is passed to a "business partner," nothing stops that company from selling it again.

Consumers such as Woody Leonhard, computer-book author and founder of Woody's Windows Watch, an email newsletter, ( www.woodyswatch.com ) are livid that Microsoft changed the rules after the consumers disclosed their personal data.

Only this year has Microsoft offered its customers a way to opt out of this violation of personal privacy. To do so you must find and uncheck two obscure boxes. In Hotmail, click "Options," then click "Personal Profile" At the bottom of the screen, look for and uncheck boxes marked "Share my e-mail address" and "Share my other registration information." Woody Leonhard noted that he never gave Microsoft permission to distribute his personal data. Microsoft checked these boxes unilaterally for all the previously enrolled Hotmail customers. For any other online service of Microsoft which you use, such as Passport and MSN, you need to look for and uncheck two similar boxes.

In response to Woody's written protests, Microsoft said it was doing him a favor because now he has a way to opt out, and that he was deemed to have agreed to a 520 line online contract, which he did not remember signing. Microsoft says that your data is not shared with partners unless you sign in to use your passport at a partner site.

Microsoft's response begs the question: companies should not sell personal consumer data without the prior affirmative consent of the consumer. Tougher laws are needed to protect our privacy.

N.J. Predatory Lending Bill Advances

Bill A.75, Home Ownership Security Act, has been passed by the full Assembly, after Speaker Albio Sires shifted its committee. The bill now awaits action in the Senate Commerce Committee.

Several pro-creditor amendments were added to the bill. The bill defines a high cost mortgage as one meeting several thresholds, such as 5% of fees and costs. However, many third party items were designated as permissible, not counting toward the 5%. The amendments eliminated a good general prohibition on arbitration clauses, but states that the consumer alone has the option to arbitrate claims and defenses under this act. A.75 eliminated the "void" penalty for violations of the act. The bill would still permit rescission by recoupment. Some consumer advocates think that predatory loans include more than just those loans defined by the bill. A.75 does state that it preserves defenses which the consumer may have under the common law. There are many specific prohibitions, such as no balloon payments but they are tied to loans which meet the act's definitions of "high cost home loan."

Consumer Litigation Conference:
Atlanta, Oct. 25-28

The National Consumer Law Center and the National Association of Consumer Attorneys will hold the annual consumer rights litigation conference in Atlanta, Ga. on Oct. 25-28. This conference brings together public interest and private attorneys who sue to uphold consumer rights. Both beginners and experienced counsel attend. All benefit from sharing their tips and techniques.

Subjects will include predatory lending. auto dealer fraud, credit reports, electronic banking, arbitration clauses, and much more. For a registration form, call the NCLC at 617-542-8010 or go to

RENT TO OWN RAP is available for free as a MP3 song at the Consumers League website: www.clnj.org/rto_rap.htm

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