Democratic state lawmakers, including one from Buffalo, are seeking to rein in the controversial rent-to-own industry in New York with legislation capping the prices the stores can charge and mandating additional consumer disclosures.
The bill, introduced in the Assembly this month, marks a significant challenge to a profitable industry that has long been denounced by consumer advocates for gouging low-income consumers.
If approved, it also could be a sharp defeat for a lobby-savvy industry that counts New York as one of its first success stories in the legislative arena. And it could drive the industry away, company executives warn.
"If enacted, this legislation would eliminate the rent-to-own business in New York, taking an important option away from consumers who need and want our services," said Christopher Korst, general counsel for Rent-A-Center, the industry giant. "There is no legislative precedent for applying these kinds of price controls."
The bill was introduced by Queens Democrat Audrey I. Pheffer, chairwoman of the Assembly Consumer Affairs and Protection Committee, and is co-sponsored by Banks Committee Chairman Darryl C. Towns, D-Brooklyn, and Buffalo Democrat Crystal Peoples.
But consumer advocates say the bill doesn't go far enough.
"It still leaves a huge hole, and it fails to adequately protect consumers," said Peter Dellinger, attorney at the Empire Justice Center in Rochester. "It perpetuates the industry's ability to engage in predatory lending."
And it lacks a State Senate companion, making final passage uncertain. State Sen. Dale M. Volker, R-Depew, will "reach out to Crystal Peoples and see what they can do to get a bill that can be viable in both houses," said his spokesman, Craig Miller. "It's a consumer protection bill, so it's obviously something we'd be interested in looking at."
Gov. Eliot L. Spitzer previously expressed concerns about the rent-to-own industry when he was attorney general, but he was not available to comment Tuesday.
The new bill follows a weeklong series called "The High Cost of Being Poor," published by The Buffalo News in June. The stories detailed the extra and sometimes illegal charges that low-income people -- without cash or credit -- often pay to cash checks; buy groceries; borrow money in the short term against tax refunds, paychecks or cars; purchase a home or car; and buy insurance. And it examined rent-to-own stores.
In the wake of the series:
* The Buffalo Urban Renewal Agency adopted new rules to block abusive lending against the poor, threatening to withhold subsidies from home builders if loans on their homes carried rates above certain limits.
* Sen. Charles E. Schumer, D-N.Y., issued a scathing report on the rent-to-own industry and introduced federal legislation.
* The City of Buffalo passed legislation requiring any store that cashes checks in the city to reveal its rates or lose its license. Many were cashing checks illegally and charging rates of up to 10 percent, The News found.
* The Erie County district attorney's office is investigating some corner stores that cashed checks for possible tax evasion.
* The Assembly held two public hearings in the fall, in Buffalo and New York City. Lawmakers heard testimony from consumers, advocacy organizations and businesses and called for changes.
Rent-to-own stores -- such as Rent-A-Center, Aaron's and Rentway -- allow consumers to buy brand-name new or used furniture, appliances, electronics and other merchandise with payments over one to two years. Supporters note there's no down payment and no credit check, and free delivery, pickup and servicing.
All prices are disclosed, and the weekly or monthly payments can be fairly low, making them affordable and appealing to low-income consumers. But over time, the consumer will have paid two to three times what it would have cost them outright at a traditional retailer like Sears, Best Buy or Circuit City. Korst acknowledges the high prices but said rent-to-owns provide services other retailers don't, although that means they have higher costs.
Rent-to-own stores operate under a 1986 state law passed at the industry's behest to legitimize its practices. That law, which calls for industry-backed price and other disclosures, was touted by politicians and became a model for other states.
The law allows rent-to-own stores to set their "cash" price -- at which they would sell each item outright -- based on the price other merchants sell it for in the local market. But it defines "merchants" as other rent-to-own stores. And they can double that price to reach the "total cost of ownership" over the length of the contract. The difference is the "lease charge."
Assembly Bill 66 would cap the extra lease charge over the cash price at 25 percent per year, instead of 100 percent. It also would require the stores to disclose the "lease charge" in dollars and as a percentage of the cash price, and advertisements would have to include the lease charge for the first time.
It also defines the cash price as the average cost of the item at a "reasonable number of merchants in the trade area" during the prior 60 days. However, Dellinger, of the Empire Justice Center, said the bill still defines a merchant as a rent-to-own store, leaving the industry still able to set its prices.