Schumer Reveals: New Scam Preys on Poorest and Most Vulnerable - Air Conditioners, Refrigerators, TV's and Ovens Rented to Poor at 250% Mark-Up

Schumer Reveals: New Scam Preys On Poorest And Most Vulnerable-Air Conditioners, Refrigerators, TV's And Ovens Rented To Poor At 250% Mark-Up

Rent-to-Own Industry Promotes Deceitful Lease Agreements that Charge Customers $1,247 for a $350 Television

Rent-to-Own is a Multi-Billion Dollar Industry that Sells Basic Household Goods by Making Low-Income Customers "Lease" Items on a Weekly or Monthly Basis Until they have Fulfilled their Contract and Own the Item

Schumer Introduces Plan to Require Renegade Industry to Abide by State Usury Laws, and Calls for Tougher Enforcement Regulations and Better Disclosure for Customers

U.S. Senator Charles E. Schumer today revealed a new survey that showed New York City's Rent-to-Own (RTO) industry uses deceitful lease agreements to grossly overcharge the city's most vulnerable residents for common household goods. The Senator's study exposed the RTO industry's practice of charging excessive interest rates in New York and using misleading marketing tactics to prey on uninformed customers. The RTO industry targets New York consumers who lack the disposable income and access to credit cards to purchase basic household goods at competitive retail prices. These customers, in turn, are forced to pay astronomical prices for televisions, air conditioners and computers that are up to 256% higher than their recommended retail prices. To control this lightly regulated industry, Schumer today announced a plan that would force the RTO industry to better disclose its prices and hidden fees and abide by state limits on interest and financing charges. "For too many years, Rent-to-Own industry has preyed on New York's most vulnerable consumers," said Senator Schumer. "Like highway bandits, these companies search out helpless consumers who desperately need basic household goods and milk them out of hundreds, and sometimes, thousands of dollars. Our plan will rein in this renegade industry and give New York consumers better prices, more knowledge, and, ultimately, more purchasing power."

The Rent-to-Own industry is one of the country's fastest growing industries with 8,300 stores nationwide, 2.7 million customers and $6.6 billion in revenues. RTO profits by having customers "lease" items such as appliances, computers, televisions and furniture on a weekly or monthly basis until they have fulfilled their contract and own the item. An air conditioner with a market value of $279 typically requires 30 weekly payments of $25.99, or a total of $779.70 when the lease has been completed. The additional $500 a customer pays for the air conditioner represents a 179% mark-up from the market value price. RTO stores are often exempt from complying with state usury ceilings claiming that their fees are based on leasing charges. However, studies have shown that the industry is marketing the dream of ownership to its customers with 86% of RTO customers signing contracts with the expectation that they will eventually own the item. Studies by the Federal Trade Commission have shown that more than 70% of all RTO customers end up fulfilling their contracts and owning the goods they rent.

In 1986, New York State passed a watered-down law regulating the Rent-to-Own industry. The law establishes that charges are exempt from small loan usury caps and are not considered interest. While the law intended to cap the final rent-to-own prices at 200% above the "cash price" of the item, it doesn't bar stores from setting their own "cash price" for those items. For instance, a Toshiba 27" television that typically sells for $349.00 is sold outright by Rent-A-Center in New York for a "cash price" of $623.00. This allows RTO stores to skirt the spirit of the law and charge consumers well in excess of the 200% ceiling. In New York City, the Rent-to-Own industry is dominated by the Rent-A-Center chain. Schumer's office conducted a survey from late June to early August that documented the rental price information for 29 of the 38 local Rent-a-Center stores in the five boroughs (Brooklyn, 8; Queens, 7; Manhattan, 5; Bronx, 6; Staten Island, 3). The study shows how Rent-A-Center almost exclusively operates stores in New York's disenfranchised neighborhoods where local residents lack the economic means to shop at competitive retail stores. The study also demonstrated a concerted effort on the part of Rent-A-Center to skirt the spirit of the New York State's RTO law by setting its own "cash price" well above standard competitive retail prices and by being allowed to consider charges as fees, not interest.

The study focused on the "cash prices" and lease contracts for four regularly rented household items including a Toshiba DF46 27" television and a Whirlpool ACM122PS air conditioner. Out of the stores which offered accurate price data for the television, most stores cited a lease plan consisting of 78 weekly payments of $15.99. Customers that fulfilled the entire duration of the lease would pay an overall price of $1,247.00, an egregious 256% markup from the $349.99 retail price listed on Toshiba's official website. Out of the stores which offered accurate price data for the air conditioner, most stores cited a lease plan consisting of 30 weekly payments of $25.99. Customers that fulfilled the entire duration of the lease would pay an overall price of $779.70, a staggering 179% markup from the $270.00 retail price listed on Whirlpool's official website.

Today, Senator Schumer announced plans to introduce sweeping Federal legislation to reform RTO outlets sales practices and disclosure requirements. The main provisions of The Renter's Rights Act of 2006 includes the following measures:

• All RTO outlets would be required to disclose: the cash price of item; an itemization of services offered under the RTO contract and the price of each service; annual rental price percentage rate of item under contract; the incremental (weekly, monthly) payment applicable under the contract; total payments needed to achieve ownership; specification of whether product is new or used. The disclosure would have to be on all products in stores and on all advertising material.

• All fees assigned to RTO transactions would be considered interest, not leasing charges. As such, RTO sales could not assess interest charges in excess of the interest charges that may be charged under the laws of the state in which the seller is located. In New York State, interest is considered criminally usurious when it exceeds 30% per year.

• Work towards establishing a standard cash price of items sold in RTO stores. The prices would be representative of merchandise offered within the area so that consumers knew if baseline retail prices were being artificially inflated in RTO stores. This measure would crack down on New York RTO outlets who regularly inflate prices to comply with the 200% ceiling.

• The following Federal laws would apply to all RTO Transactions: Truth in Lending Act, Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act. Greater oversight and accountability could be achieved if they were.

• Consumers would have the right to terminate at any point in the contract AND the termination fees cannot exceed 5% of contract price and must be disclosed in the contract. In addition to charging astronomical "rental" fees, RTO frequently sells used goods as new, incorporates deceptive add-on fees and studies have documented their use of aggressive repossession tactics when consumers are late with payments. The stores are located largely in underserved neighborhoods. The Federal Trade Commission has found that 31% percent of RTO customers are African American, 73% had a high-school education or less, and 59% had household incomes less than $25,000. The average RTO customer rented an average of 2.5 items of merchandise per year over the last five years. Rent-to-Own customers typically have poor or no credit ratings.

Over the past two decades, the RTO industry has lobbied legislatures in 45 states to pass law that treats rent-to-own as a lease. Despite RTO's intense lobbying, New Jersey, Vermont, Minnesota, Wisconsin and North Carolina have successfully protected consumers against the RTO industry by treating rent-to-own sales as small loans and requiring them to comply with usury ceilings, APR disclosures and other consumer protection provisions. Schumer was joined at the event today by New York State Assemblyman James Gary Pretlow (D-Mount Vernon, Yonkers). Pretlow is the author of Assembly Bill 592 which would limit many of the egregious and onerous tactics utilized by the Rent to Own Industry.

http://schumer.senate.gov/SchumerWebsite/pressroom/record.cfm?id=261545&&year=2006&