Rent to Own Under Attack in New York

Implications: New York lawmakers at the local, state, and federal levels continue to publicly bash the Rent to Own industry for what they call “exorbitant prices” and other predatory practices. While the evidence they site is vague at best, the New York Legislature has introduced a bill that could bring an end to RTO in the state, and Senator Charles Schumer is attempting the same thing on Capitol Hill.

Analysis:

Picking up the baton where the New Jersey Supreme Court recently left off, some lawmakers in New York are supporting a bill that, if passed, could effectively end Rent to Own in the state. The bill limits the total amount paid under any RTO agreement to the cash price of the merchandise plus 25% per year, and is another example of lawmakers mistakenly characterizing the RTO transaction as a credit/installment sale instead of a lease. Since the customer in an RTO transaction has the right to return the merchandise at any time with no further obligation, the IRS and almost every other state, including New York, have deemed the transaction a lease, and thus not subject to state usury laws.

Recently, the New Jersey Supreme Court ruled that an RTO transaction is an installment sale and is subject to the New Jersey usury limit of 30% per year. RTO operators responded by increasing their cash prices and tweaking their lease rates and early payout formulas to comply with the 30% cap. The proposed New York legislation defines “cash price” as the price as the price charged “by a reasonable number of merchants in the trade area during the sixty days prior to the date of the rental-purchase agreement.” It is unclear how many merchants constitutes a “reasonable number” and what constitutes a “trade area.” This vague standard would make pricing much more difficult for New York RTO operators.

New York Senator Charles Schumer has proposed similar legislation at the federal level in what he calls the Rent to Own Protection Act, which would subject RTO operators in every state to that state’s own usury laws. If passed, the Act would trump state laws that specifically define the RTO transaction as a lease.

The “investigative report” referred to in the NY Times article was compiled by a consumer advocacy group called the Neighborhood Economic Development Advocacy Project. The report alleges, among other things, that RTO charges too much and targets low-income consumers, specifically minorities. Rent-A-Center’s General Counsel recently testified before the New York Assembly that the mix of RTO customers is nearly identical to the overall US population mix in terms of race. Rent-A-Center, the largest RTO operator in the country, has over 120 stores in New York. Aaron Rents, the second largest, operates 30 Aaron’s Sales and Lease stores in the state.