June 4, 2005

Dear Assemblymen and Assemblywomen:

The Rent-To-Own (RTO) industry has a history of anti-consumer abuses.  The problems are many, ranging from an inflated cash price to loan shark interest rates.  As a result of these practices, the RTO industrys customersamong the poorest consumers of allcan be charged nearly four times what consumers able to obtain conventional credit are.  What should be done about this situation? 

Perhaps surprisingly, we urge that the Legislature do nothing.  The Legislature has already passed two strong, comprehensive laws that by their terms clearly apply to the RTO industry:  the Retail Installment Sales Act and the Criminal Usury Statute.  Although it would appear that the RTO industry disregards these laws, claiming that it is above them, this time of lawlessness is drawing to a close.  This term, the New Jersey Supreme Court will rule on the applicability of these existing consumer protection statutes to the RTO industry.   We are confident the Court will find for consumers, and therefore we believe that no action from the legislature is necessary at this time.

Assembly bill #3851 would give the Legislatures blessing to the following practices:

1.  Artificially inflated cash prices.  The cash price is the minimum the consumer can pay, and is the base from which interest is calculated.  Under the bills formula, the cash price can be as much as double what other retailers in the same area charge.

2.  Loan shark interest rates.  On its face, the bill does not mention what interest rates may be charged, other than to say that the criminal usury statute does not apply.  However, the bill explicitly permits RTO stores to charge a cost of lease services that is double the inflated cash price, regardless of the length of the contract, and in this way opens the door to exorbitant interest rates.  If the RTO contract is one year, doubling the price reflects a 152% annual percentage rate; if it is 18 months, the interest rate is 103%.  In all other retail contexts, charging more than 30% interest is considered criminal.

3.  Concealing the APR.  The bill does not require disclosure of the APR, and in fact prevents the NJ Consumer Affairs Director from writing any regulation that would require the disclosure of the APR.  Calculating an APR is difficult math, because the interest is being charged on a declining balance, and it is beyond most peoples ability to do even with a calculator.  Failing to disclose the APR enables RTO stores to hide just how bad the deal they offer is.

4.  Excessive fees.  The cost of lease services is disingenuously named; it does not represent the total cost of renting to own.  The cost of lease services excludes a variety of fees, namely: late payment fees, processing fees, default, pickup and reinstatement fees or charges and applicable taxes.  Every time a payment is late, the RTO store may charge $5.  Given that contracts can be set up for weekly payments, this provision alone would allow as much as an extra $260/year. 

This legislation would make all of these abusive practices legitimate under New Jersey law.  Admittedly, the bill contains other provisions as well, some of which are favorable to consumers.  Nonetheless, none of those provisions, not even in total, comes close to countering the harm caused by the provisions above. 

We urge you to work against passage of A3851.

Thank you for your time and your efforts to protect New Jersey's most vulnerable consumers.


Marilyn Askin                                                   Douglas Johnston
State President                                                 Governmental Affairs

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