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On June 22nd, Senator Mary Landrieu (D-LA)
testified before the Senate Banking Committee is support of The Consumer Rental
Purchase Agreement Act. Following is the complete text of that testimony. RTO
Online has archived the audio. To listen to the testimony,
follow this
link.
Good Morning, Mr. Chairman and members of the
Committee. It is my pleasure to appear before this Committee today to talk about
federal rent-to-own legislation. Let me begin by thanking you, Chairman Shelby,
for scheduling hearings on regulatory relief in general, including legislation
that I introduced earlier in this Congress, S. 884, which you and many others on
this Committee have agreed to cosponsor. The bill has broad bipartisan support,
including several members of this committee and I hope that the Committee will
include my legislation in future regulatory relief legislation.
S. 884, standing alone or as part of this regulatory relief package, proposes to
regulate the rent-to-own, or rental-purchase, transaction, for the first time at
the federal level. In introducing this legislation, I have tried to insure that
the interests of the consumers are protected while providing a federal floor of
consumer protections.
Preemption is an important issue for many of us. Those of us who have previously
served in our respective state legislatures hold our colleagues in the state
legislatures in high esteem. If enacted, this legislation would serve only to
establish a floor of regulation of the rent-to-own transaction. State
legislatures would have full opportunity to pass stronger laws and regulations,
modify existing statutes, or even outlaw the transaction entirely if that is
what those bodies believed was appropriate. My bill does not preempt any state
statute. This bill, however, would finally establish a federal or national
definition of the term “rental-purchase”, consistent with the definitions found
in these various existing state statutes and within the Internal Revenue Code.
Just as is the case under other federal consumer protection laws, including TILA
and the CLA, states would not be permitted to define or “mischaracterize” the
rent-to-own transaction in a manner that would be inconsistent with the
definition in this bill.
Now let me turn to what the bill does in terms of providing consumer protection
and uniformity in terms of a floor of federal consumer protections.
The rent-to-own, or rental-purchase industry, offers household durable
goods—appliances, furniture, electronics, computers and musical or band
instruments are the primary product lines—for rent on a weekly or monthly basis.
Customers are never obligated to rent beyond the initial term, and can return
the rented product at any time without penalty or further financial obligation.
Of course, customers also have the option to continue renting after the initial
or any renewal rental period, and can do so simply by paying an additional
weekly or monthly rental payment in advance of the rental period. In addition,
rent-to-own consumers have the option to purchase the property they are renting,
either by making the required number of renewal payments set forth in the
agreement, or by exercising an early purchase option, paying cash for the item
at any time during the rent-to-own transaction.
Rental companies typically provide delivery and set up of the merchandise, as
well as service and replacement products, throughout the rental at no additional
cost to the consumer. Rental companies do not check the credit of their
customers, and do not require down payments or security deposits, nor do they
report to credit agencies information regarding consumers. Consequently, this is
a transaction that is very easy to get into and out of, ideal for the customer
that wants and/or needs financial flexibility that only this unique, hybrid
rental-and-purchase transaction affords.
The rent-to-own transaction appeals to a wide variety of customers, including
parents of children who this week want to learn to play the violin, only to find
that, two weeks later, the child is more adept at—and interested in—fiddling
around. Military personnel who are frequently transferred from base-to-base, who
want quality furnishings for their apartments or homes but who often cannot
afford, or do not want, to purchase these items, use rent-to-own. College
students sharing apartments or dorms rent furniture, appliances and electronics
from rent-to-own companies. The transaction serves the needs of campaign
offices, summer rentals, Super Bowl and Final Four parties, and other similar
short-term needs or wants.
Importantly, however, this transaction is also frequently used by individuals
and families who are just starting out and have not yet established good credit,
or who have damaged or bad credit, and whose monthly income is insufficient to
allow them to save and make major purchases with cash. For these consumers,
rent-to-own offers an opportunity to obtain the immediate use, and eventually
ownership if they so desire, of things that most of the rest of us take for
granted—good beds for our children to sleep on, washers and dryers so they don’t
have to spend all weekend at the Laundromat, dropping coins into machines that
they will never own. Computers so the kids can keep up in school, decent
furniture to sit on and eat at, and so on. Rent-to-own gives these working class
individuals and families a chance, without the burden of debt, and with all the
flexibility they need to meet their sometimes uncertain economic circumstances.
This is certainly a more viable alternative than garage sales, flea markets and
second-hand stores.
The Internal Revenue Service, as a matter of law, has determined that fewer than
50% of rent-to-own transactions result in purchases and the rent-to-own industry
statistics confirm that approximately one in four transactions results in the
renter electing to acquire ownership of the rented goods. In the other 75%,
according to the industry numbers, customers rent for a short period of time and
then return the goods to the store, typically in just a few weeks or months.
There are roughly 8,000 rent-to-own furniture, appliance and electronic stores
throughout the country, and in Puerto Rico. Additionally, there are several
hundred musical instrument stores. The majority of companies operating in this
business are “mom-and-pop” family owned businesses, with one or two locations in
a particular city
or town, with less than one-half of these stores being owned by major,
multi-state corporations.
Over the past 20 years, there has been a healthy and vigorous public debate,
played out primarily at the state level, and to some extent here in Washington
as well, about the appropriate method of regulating this transaction. Some
individuals and groups have argued that rent-to-own is most similar to a credit
sale, and consequently should be regulated as such. However, as you have just
heard me describe, this transaction differs from consumer credit is a number of
respects, most importantly in that the rent-to-own customer is never obligated
to continue renting beyond the initial rental term, and has the unilateral right
to terminate the agreement and have the products picked up at any time, without
penalty. This is the critical distinction—under traditional credit transactions,
the consumer must make all of the payments over a predetermined period of time
or risk default, repossession, deficiency judgments and, in worst cases, damaged
credit and personal bankruptcy. By way of stark contrast, the rent-to-own
customer enjoys complete control over his or her use of the rented goods, and
the terms of the rental transaction itself. To this point, the Federal Trade
Commission distinguished between the rent-to-own transaction and a credit-sale
transaction in its seminal report on the rent-to-own industry in 2000 saying
that:
“Unlike a credit sale, rent-to-own
customers do not incur any debt, can return the merchandise at
any time without obligation for the remaining payments, and do
not obtain ownership rights or equity in the merchandise until
all payments are completed.
Every state legislature that has enacted rent-to-own specific legislation,
beginning with Michigan in 1984, has agreed that this unique transaction is not
a form of consumer credit, but instead is something very different. My bill, S.
884, is consistent with the approach taken by all these various state laws.
However, as I explained earlier, this proposal would set a floor of regulation,
beyond which states would be free to regulate if the state legislatures saw the
need to do so in response to local concerns and conditions. And in fact, any
number of the existing state laws provide greater consumer protections than
those imbedded in this bill, and those stronger regulatory frameworks would
remain controlling in those states if this bill were to be enacted. One other
note: This bill, if enacted, would align federal consumer protection law with
federal tax law, which treats rent-to-own transactions as true leases and not as
credit sales for income reporting and inventory depreciation purposes. In short,
no state legislature would be precluded from regulating this transaction in any
way. It would however, no be allowed to redefine this transaction as something
it is not. This is consistent with how Congress has dealt with consumer leases
over four months in length and true credit transactions.
Finally, this bill enjoys the unanimous support of the rental-purchase industry,
from its largest members to its smallest.
This bill strikes a balance between the needs for consumer protection and the
need to establish and maintain a fair and balanced competitive marketplace in
which businessmen and –woman can survive and thrive and continue to provide a
financial transaction the consumer wants. I believe that it is this balance that
has made the bill so attractive to such a variety of cosponsors, evenly split
between Democrats and Republicans.
The bill does 5 major things:
• One, it defines the transaction in a manner that is consistent with existing
state rent-to-own laws, as well as federal tax provisions. As an aside, this
definition is also consistent with the views of both the Federal Reserve Board
Staff and the Federal Trade Commission, as expressed in their testimony before
the House Financial Services Committee in the 107th Congress.
• Two, it provides for comprehensive disclosure of key financial terms in
advertising and on price cards on merchandise displayed in these stores, as well
as in the body of the rental contracts themselves. These disclosure requirements
were adopted in part from the recommendation of the FTC in its seminal report on
the rent-to-own industry from 2000. Overall, these requirements exceed the
disclosure mandates under Truth-in-Lending as well as the federal Consumer
Leasing Act.
• Three, the bill establishes a list of prohibited practices in the rent-to-own
industry, a list similar in content and substance to the practices prohibited
under the Federal Trade Commission Act, and under most state deceptive trade
practices statutes. These provisions are unique—neither Truth-in-Lending nor the
Consumer Leasing Act contains similar provisions.
• Four, the bill adopts certain universal substantive regulations shared by all
of the existing state rental laws. For example, the bill would mandate that
consumers who have terminated their rental transactions and returned the goods
to the merchant be provided an extended period of time in which to “reinstate”
that terminated agreement—that is, to come back to the store and rent the same
or similar goods, starting on the new agreement at the same place the customer
left off on the previous transaction.
• Finally, the bill adopts the remedies available to aggrieved and injured
consumers under the Truth-in-Lending Act, including a private right of action
for consumers.
In summary, this legislation would go farther in providing substantive
protections for rent-to-own consumers than does any other federal consumer
protection law on the books today. And yet, it enjoys the unanimous support of
the industry, because it is fundamentally fair and balanced.
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RTO Online is the official channel for Rent-to-Own Industry News and the
only independent source of news for the rent-to-own, rental-purchase,
lease-purchase trade. RTO Online (Rent to Own Online) represents the choice
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