Rent to Own Campaign
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Legislative Update

Rent to Own Campaign
* Pamphlet and Poster

RTO Bills in Legislature

Three Requirements for Real Reform in rent to own
Why do people use rent to own?

RTO Compared to department store credit

RTO industry bills are loophole-ridden frauds

Contents of bills A.1097/S.1343
Choice for New Jersey:
Fleece the poor, or
Protect the Poor

Contact your representatives

CLNJ Home Page

Rent to own is the worst way in the world to buy televisions, appliances and furniture. A "rent to own" store will sell these goods on credit by calling the transaction a "lease."

The ultimate scam:
Will U.S. House Committee vote to legalize unlimited interest for Rent to Own stores? And Prohibit Disclosure of the Annual Percentage Rate?

The problem with rent to own is that, to buy the goods, the effective interest rate can be higher than 100% interest! To buy a small TV, you may have to pay $1,000! Worse yet, rent to own customers never get a disclosure of the interest rate, which is inherently deceptive. A customer cannot "agree" to pay a rate which is hidden from him.

Sad to say, many states (but not New Jersey) have passed laws permitting RTO operators to charge legalized loanshark rates. In those places, it may be legal, but it is still immoral. The United States actually had laws legalizing slavery, and then segregation, and it took a long time to change them. RTO is a form of peonage (debt slavery), similar to sharecropping and the "company store" of mining towns-- you pay and pay, but never get to the end. Consumers ought to rise up and demand that their states pass laws limiting the interest on rent to own sales to the reasonable interest rates which honest credit merchants already obey. Poor and urban consumers deserve equal credit and banking opportunities - not fourth class treatment from rent to own, with prices four times higher than the middle class pays.

Rent to Own Educational Campaign

Consumers League Education Fund, with a NCCE grant, funded by AT&T, has a campaign to tell consumers the true cost of buying with rent to own.

Consumers League has produced a rap song-- the RENT TO OWN RAP, which is available as a 60 second public service announcement for the radio. Media may contact CLNJ to obtain the PSA.

Consumers League has a pamphlet, With Rent to Own Your Paycheck's Blown, which warns about the true cost of RTO. Consumers League also has a poster, Rent to Own- $1,000 for one small TV- $1,000 could buy you five TVs, for distribution to consumer groups, churches, social agencies and government. Just click on the name of the poster, pamphlet or RAP song above to see it.

Rent to Own Bills in N.J. Legislature:

The Choice is Clear:
Fleece the poor with S.1343/A.1097, (Legalizes Interest Rates of 100% and higher), or
Protect the poor with S.1491/A.294 with the 30% Criminal Usury Limit

Rent to own is a retail installment sale pretending to be a lease, as the Superior Court of NJ decided in Green v. Continental Rentals, 292 N.J. Super 241 (1994). Three NJ judges have held RTO illegal. Rent to own sales should be governed by the same set of rules that all credit merchants now obey, such as the 30% criminal usury law. Consumers League condemns S.1343 and A.1097 because they would legalize interest rates of over 100%. CLNJ supports S.1491/A.294, which limits rent to own to 30% interest.

Real reform in rent to own would come about if the Legislature made rent to own:

* obey the law NJ's 30% criminal usury law like legitimate merchants do,
* disclose the Annual Percentage Rate- to conceal the interest rate is inherently deceptive, consumers do not now know what they are paying,
* base the APR on actual fair market values such as the price at "Sears" for the goods.

Consumers League calls on Attorney General John Farmer, our state's chief law enforcement officer, to enforce the criminal usury law! No free ride for usury! You should oppose these bills to legalize loanshark rates.

Rent to own stores will be found only in poor and urban neighborhoods. If you have a car to get to the mall, you likely will use a credit card, and avoid rent to own. RTO sells TVs, appliances, and furniture on credit. For $13 per week, and after 78 weeks or 87 weeks, the item is yours. A TV which sells for $250 cash at Sears, etc, is sold for $1,014 at RTO:

Rent to own sale of $250 TV:
Amount financed: $250
Weekly payment: $13
Number of weeks: 78 [18 months]
Finance charge: $764
Total of Payments: $1,014 Annual Percentage Rate: 265% Yes, 5 percent per week!

The very same TV, purchased with store credit or a credit card is vastly cheaper:

Department Store Sale of $250 TV:
Amount financed $250
Monthly payment $16.17
Number of months 18
Total of Payments $291.06
Annual Percentage Rate 19.8%
Excess dollars paid if you buy at Rent to Own: $723 --enough for apx. 3 additional TV sets!

Doubt the figures? visit a rent to own store, note the prices, then check out the same goods at Sears. There is no arguing with the math: RTO charges from 75% to 300% routinely. Ask RTO to produce a few actual RTO contracts. Ask for the Totals. You will be shocked.

Why would anyone ever buy at RTO? Rent to own looks like the traditional 30% credit sellers, who have always been abundant in the inner city. The RTO prices are "weekly" in order to seem low. But RTO buyers never get a nice chart setting forth the APR. Rent to own never discloses the Annual Percentage Rate. The people who buy at RTO are being fooled. To conceal the Annual Percentage Rate is inherently deceptive. If your RTO contract mentioned 265% interest, we doubt many people would do it. The Annual Percentage Rate has been the universal yardstick of credit for over 25 years. The APR has worked well to control outright fraud in interest disclosures, and to eliminate unfair calculation methods.

Real consumer legislation would force RTO to disclose the APR, and limit it to 30%. But the RTO industry claims a loophole exempts them from disclosing the APR the same way that legitimate creditors do. In fact, RTO claims an even more outrageous whopper: that they are not charging interest at all! But Green v. Continental Rentals exploded that one, holding: "There are no services. This is interest."

Despite the heavy emphasis on the "OWN" in the term "rent to own," RTO claims that it is "leasing" goods, that the consumer can return them in the middle of the contract. But the consumer can't win with rent to own. If you "lease" a $250 TV for a year, then give it back, you will have paid $676 for a $250 TV, which you don't get to keep. You've been had. If you pay the full $1,014 for one $250 TV, you've also been had. Either way, the consumer always loses with rent to own. There is no "service" to the poor in making them pay four times the fair value of the goods.

RTO Industry bills S.1343 and A.1097 Contain No Real Protections for consumers

The loopholes are a mile wide. A.1097 would allow the RTO operator to set his own artificially high "cash price," then double that price as the total of payments. This would allow over 100% interest. For example, a TV with FMV of $250 would be sold under A.1097 for $500, at a minimum interest rate of 103% over 18 months, or 152% in 12 months.
In normal stores, goods are sold for a 20% discount below the Manufacturer's Suggested Price. Bill S.1343 would also allow a phoney cash price, set by the RTO dealer, for used goods. For new goods, the RTO store could double their acquisition cost, including shipping, for the phoney cash price, then RTO could double the cash price for the credit price.
In sum, if these bills pass, the Legislature would allow RTO to do exactly what RTO is already doing: charging the poor four times what the middle class pays. Charging the poor more is exploitation, plain and simple.

Thus if the Legislature passes S.1343 or A.1097, the Legislature will be an accomplice in fleecing NJ consumers by the rent to own scam. Bills S.1343 and A.1097 legalize the very same practices which three judges held to be consumer frauds.

 Governor Whitman, Attorney General Farmer 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 Unconscionable Choice: Fleece the poor with S.1343/A.1097:

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

Formula 1: 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"
(assuming "no cheating" on 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:

Formula 2: Manufacturer's Suggested Retail Price (20% higher than FMV)
(competitive stores charge substantially less than MSRP),
then double MSRP for the credit price
$250 $300 $600 18 months 136%
$250 $300 $600 12 months 203%

Formula 3: 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 Civilized Choice--Protect the poor with bill A.1491/A.294 (Allen, Codey, Bagger)-
Enforce New Jersey's 30% criminal usury 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%

Since when do politicians vote in favor of fraud?? Or to legalize criminal usury??

Let your representatives know what you think about rent to own!

Rent to own has, according to the Associated Press, paid over $100,000 to their lobbyists, or in campaign contributions! Will the Legislature legalize interest rates which would make a loanshark blush? Call/write your state Senators and Assembly members. They don't think you are watching them. The N.J. Legislature website has the phone numbers of your representatives, as well as Calendars of upcoming votes. "Eternal vigilance is the price of democracy" -Jefferson, but now your participation is only a few clicks away! In the spirit of accountability, Consumers League is memorializing how your representatives voted on our "Heroes and Zeroes" page.

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