Joint Letter of Consumer Groups : NAACP, NJPIRG, Consumers League of New Jersey, Citizen Action, Latino Leadership Alliance of N.J., Lutheran Office of Government Ministry Opposing bill A3851

June 3, 2005

Re:  A3851 (Allows Exhorbitant Interest for Rent to own stores)

Dear Assemblymen and Assemblywomen:

The Rent-To-Own (RTO) industry abuses consumers.  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.  How can we justify making the poor pay so much more? 

Assemblyman Caraballo has introduced legislation that would validate the RTO industrys outrageous practices.  Passing his bill would give the legislatures blessing to:

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 (which caps rates at 30%), 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 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 anyones 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. 

Asm. Caraballos bill, A3851, would make all of these abusive practices legitimate under New Jersey law.  Admittedly, his 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.  Nor is it necessary to accept those provisions to pass good protections for RTO consumers.  We have a model bill that takes what is good from Asm. Caraballos bill, and adds protections to counter the abuses detailed above. 

Our model provides for fair cash prices, a 30% interest cap, and disclosure of the APR, the Amount Financed, the Finance Charge, the Total of Payments, and the Total Sale Price.  These provisions enable the vulnerable consumers who shop at RTO stores to understand the deal being offered, and protect them from charges that New Jersey law deems criminal in other contexts.  We urge you to join us in our efforts to pass this legislation by co-sponsoring it and persuading your colleagues to support it.

Even without passing positive, pro-consumer legislation, many of these protections may yet become New Jersey law, because of an appeal currently pending in the New Jersey Supreme Court.   Sometime in the next several months, the NJ Supreme Court will clarify whether RTOs practices are covered by the Retail Installment Sales Act and its companion, the Criminal Usury Statute.  If the Court rules these laws apply, the RTO industry will be forced to clean up its act.  Thus we believe that waiting for the Court to rule is a conservative, reasonable approach to addressing the RTO industrys abuses at this time

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

Sincerely,

NJPIRG
Abigail Caplovitz, Legislative Advocate
Dena Mottola, Executive Director

New Jersey Citizen Action
Phyllis Salow Kaye, Executive Director

New JerseyNAACP
Keith M. Jones, State Presiden

Latino Leadership Alliance of N.J.
Martin Perez, President

Lutheran Office of Government Ministry
Rev. Bruce Davidson

Consumers League of New Jersey
Neil Fogarty, Board member, President Emeritus