For more than a decade, the rent-to-own industry has watched as 20 separate pieces of federal legislation it supported failed in Congress. After years of frustration, it decided to assert itself more aggressively.
Already a major political donor, the $6.3 billion-a-year industry paid lobbyists to “put a human face” on its case and looked for new ways to sow good will with key Democratic lawmakers, who were wary of an industry that rents equipment such as televisions, appliances, computers, furniture and refrigerators to people — often low-income consumers — with the option to buy them later.
For instance, the Association of Progressive Rental Organizations (APRO) invited Rep. William Lacy Clay of Missouri to be keynote speaker at its annual conference last year in St. Louis and arranged for executives to donate $14,000 to Mr. Clay’s personal charity so they could participate in his annual golf tournament that raises money for student scholarships.
Industry officials have routed an additional $21,000 in political donations since 2006 to Mr. Clay’s re-election campaign, Federal Election Commission (FEC) records show. On the Senate side, they directed nearly $61,000 in donations over three years to Sen. Mary L. Landrieu, Louisiana Democrat.
The industry’s optimism has grown with its political investment.
Mr. Clay has secured 109 co-sponsors in the House for federal legislation he introduced in March that would immunize the industry from stronger consumer-protection laws at the state level, including provisions that would force the industry to comply with state usury ceilings or interest-rate disclosure laws, such as the Truth In Lending Act.
Industry officials have convinced 46 states to enact legislation that treats rent-to-own transactions as a lease, although several states insist on treating rent-to-own sales as small loans, requiring compliance with usury ceilings, annual percentage-rate disclosures, and other consumer-protection provisions.
Mrs. Landrieu has secured 15 co-sponsors for identical legislation she also introduced in March.
APRO, which calls itself the “official voice” of the rent-to-own industry, is “more optimistic about passage this year than ever before,” the group’s executive director, Bill Keese, told The Washington Times.
“There are more co-sponsors at this juncture than ever before, decision makers have a more complete understanding of the issue, and the two committees of jurisdiction are more focused on considering responsible regulations than in the past,” he said.
In April, hundreds of APRO leaders, corporate managers and store-level associates came to Washington to meet with congressional staff members and assist with “multiple community outreach initiatives” aimed at passing the pending bills.
But where the industry lobby sees success, consumer-protection advocates and ethics watchdogs see a corrupting “pay-to-play” system that uses political money to buy access and influence.
It is a system Democrats vowed to end when they took over Congress in 2007, but which has, in the minds of ethics specialists, persisted with little change.
“It’s shocking that Rep. Clay’s foundation would accept contributions from industry leaders whose legislation he is championing,” said Naomi Seligman, deputy director at Citizens for Responsibility and Ethics in Washington (CREW).
“Joining the likes of former Gov. Rod Blagojevich and now-jailed former Rep. Randy “Duke” Cunningham, Rep. Clay is now part of a club of public officials who sell their access for cash. Congratulations.”
At the APRO convention in St. Louis last year, Mr. Clay told the gathered business leaders that “One of the things I am most proud of is our success in advancing the vital interest of the rent-to-own industry.”
The multibillion-dollar rent-to-own industry rents televisions, appliances, computers and furniture by giving consumers loans payable on a weekly or a monthly basis, often under a contract, with no established imputed annual percentage rates. The transactions are made under the condition that the item will be owned by the renter if the term of rent is finished, or that the lease can be converted to a sale for a nominal fee at that time.
The Defense Department considers rent-to-own a predatory lending practice, often targeting lower-income military personnel assigned at U.S. bases.
But the industry has said its transactions are leases, as opposed to credit sales, and that no interest is charged.
APRO’s statements are contested by public watchdog groups, who said many states have passed legislation to prevent the industry from charging triple-digit interest rates on the appliances and goods it rents — particularly to its low-income customers.
In a report on the rent-to-own industry, the Public Interest Research Group (PIRG) said a television with a market value of $220 typically requires 78 weekly payments of $10, or a total of $780, meaning the customer pays $560 in finance charges at an annual percentage rate of 220 percent.
PIRG has noticed the new, vigorous industry efforts, but still believes it can block the new legislation.
“As always, the industry’s newest bills have a lot of campaign donations behind them, but it is bad public policy that won’t become law,” said Ed Mierzwinski, PIRG’s consumer program director. “They may get a hearing, but I doubt they get any more than that.”
Mark Redack, spokesman for San Francisco-based Consumer Watchdog, said while the bills appear to be calling for the regulation of the rent-to-own industry, they actually are aimed at “sidestepping” strict state consumer-protection laws already in place.
“What they’re trying to do is to get around stricter consumer laws that now exist in several states,” Mr. Redack said. “The goal is to get a more corporate-friendly federal standard to cover them nationwide, which will help them make more money and lower the restrictions.”
Mr. Redack said strict consumer laws in New Jersey, Wisconsin, Minnesota and Vermont have set limits on the amount of interest rent-to-own businesses can charge, preventing them from charging high interest rates “on items you still don’t own.”
“Basically, they’re trying to look like a bunch of good guys,” Mr. Redack said. “Hopefully, the federal government won’t cave in to their greasing of the wheels.”
Earlier this year, Policy Matters Ohio, a nonprofit research organization, said in a report that 19 rent-to-own stores surveyed in Cleveland, Columbus and Akron had charged an average rental-purchase price of $1,399 for a stove that cost an average of $311 at non-rent-to-own stores.
The report said that while that was “the most egregious example,” Ohio’s rent-to-own stores charged more than 2.7 times more for a washer-dryer pair ($1,933 vs. $704) and about 2.9 times more for a refrigerator ($1,332 vs. $462). It also noted that 68 percent of Ohio’s 400 rent-to-own stores were located in low or very low-income areas; 31 percent in middle-income areas; and just 1 percent in upper-income areas.
The congressional bills have been opposed by 52 state and territorial attorneys general, who said they pre-empt state laws that regulate rent-to-own transactions as credit sales and require full disclosure of effective interest rates.
But Mr. Keese, APRO’s executive director, described as “wrong” claims by watchdog groups that his industry charges too much and targets low-income consumers. He said customers need no credit to rent, are afforded a “maximum of flexibility” and can terminate the transaction at the end of weekly or monthly rental agreements.
“We have a customer base with limited options, customers that some big dealers won’t work with,” he said. “While we did have some real shysters out there in the past, we’re trying to clean up and professionalize the industry.”
In a recent letter to members of Congress, APRO said the rent-to-own industry has taken responsibility in improving its business practices, pricing, payment options, reinstatement rights and customer service by “embracing regulations and consumer protections in 47 state rent-to-own laws.”
It said the combination of consumer protections and industry competition has created payment options that have “significantly reduced rent-to-own prices,” adding that the “last remaining hurdle is federal legislation that the U.S. Congress has considered for the past 15 years.”
Mrs. Landrieu’s bill, S.738, has been read twice and, with 15 co-sponsors, has been referred to the Senate Committee on Banking, Housing and Urban Affairs. Mr. Clay’s bill, HR.1744, has been referred with 109 co-sponsors to the House Committee on Financial Services.
Many states place rent-to-own transactions under existing credit sales laws, subjecting them to interest ceilings and requiring the disclosure of annual percentage rates.
But Mr. Mierzwinski said the proposed legislation would result in the rent-to-own industry being regulated under weaker leasing laws.
“We need stronger lease laws like, I don’t know, a fish needs a bicycle,” Mr. Mierzwinski said. “The sole purpose of these bills is to prevent states from enforcing consumer credit laws over predatory credit products. These bills are designed … to take away protections from consumers in the states with the best laws and to prevent other states from emulating them.”
The two federal bills would override state laws that regulate rental-purchase agreements as a security interest, credit sales, retail installment sales, conditional sales or any other form of consumer credit, and would nullify any existing state law that requires disclosure of an annual percentage rate.
The bills offer amendments to the Consumer Credit Protection Act to define rent-to-own transactions in federal code. Many in the industry have been concerned that Congress would classify the transactions as credit sales, a decision industry officials said would hurt their business.
In introducing the Senate bill, Mrs. Landrieu said that despite the size and scope of the rent-to-own industry, state regulation is inconsistent and often insufficient. She said her bill would “improve consumer protections in a majority of states, while providing enough flexibility to ensure that states can enact more protective laws.”
Her spokesman, Aaron Saunders, said that while the bill has attracted only 15 co-sponsors, Mrs. Landrieu was optimistic the legislation would move through the committee based on the “strong bipartisan support we have gathered from our colleagues.”
“She also believes that senators will see how the rent-to-own industry has become a viable option for Americans to purchase necessary items without ‘breaking the bank’ during these tough economic times,” Mr. Saunders said.
Asked why the bill had not been successful in the past, Mr. Saunders said it has wrongly been criticized for defining a rent-to-own transaction as a no-obligation, short-term lease with a purchase option, not a credit sale or secured transaction. He said critics do not realize that federal law and 46 state statutes already define rent-to-own contracts as a lease, not a sale.
In a statement, Mr. Clay said his bill is “very similar” to a law that regulates the rent-to-own industry in his home state. He said the new legislation guarantees the rights of all consumers by providing them with information they need to make informed decisions.
“While my bill sets a strong standard for consumer disclosure, it also allows any state legislature to enhance that standard if they deem it appropriate,” he said.
With regard to the Clay charity, records show that Rent One, an Illinois company owned by APRO’s former president, Larry Carrico, was a “gold sponsor” of the golf tournament for its $7,000 donation. Another $7,000 gold sponsorship went to a group of companies, including the Missouri Rental Dealers Association, Rent-N-Roll Custom Wheels and Tires, and National Rent to Own, a firm headed by APRO President John Cleek.
According to lobbying disclosure reports, between 1999 and 2009, Rent-a-Center, Inc. paid seven firms $4.85 million in lobbying fees, and APRO paid its Washington lobbyists an additional $1.52 million — a total of about $6.37 million, or about $637,000 a year.
Texas-based Rent-A-Center owns and operates more than 3,000 stores in 50 states, Washington, D.C., Canada and Puerto Rico. In 2006, the company paid more than $7 million in restitution for its failure to disclose the full costs of its programs and for “deceptive advertising.” In February, it settled a class-action lawsuit in West Virginia, agreeing to pay $3.5 million into a fund administered by the court to pay claims filed by 61,000 potential class members.