NJPIRG Testimony
Before the Assembly Consumer Affairs Committee in Opposition to A695 June 5,
2008
Thank you, Honorable Chairwoman and Members of the Consumer
Affairs Committee for allowing me the opportunity to speak. I am Allison Cairo, Executive Director of New
Jersey PIRG, and we are here joined by New
Jersey’s consumer groups in opposition to A695.
We oppose this bill for a number of reasons.
First and most importantly, this bill harms consumers by
rolling back a fundamental consumer protection—the 30% interest rate cap that
applies to most consumer credit transactions.
In 2006 the New Jersey Supreme Court confirmed that the Rent-to-Own
industry’s practice of charging 80% or more interest was illegal. This bill invalidates that decision and authorizes
the Rent-to-Own industry to charge interest in excess of 100%. In addition to making a special,
anti-consumer exception to the criminal usury statute, this bill would allow
the industry to apply that egregious interest rate to an inflated principal,
and then charge additional, unlimited fees.
The bill calls the inflated principal the “cash price”,
meaning the amount a consumer must pay upfront to own the property
immediately. Section 11(a)(3) of the
bill defines the “cash price” in a way that allows the industry to charge poor
people much more than what a store like Best Buy would charge for the same
good. This price inflation makes calling
this cost a “cash price” rather ironic—a consumer with cash could get a much
better price. Actually, calling it a
cash price is more than ironic; it is deeply misleading. Few rent to own customers walk in to a rent
to own center and purchase goods outright.
The cash price’s main function is to be the base upon which interest is
calculated, i.e. the principal financed.
Unfortunately, sanctifying a greatly inflated principal is
just the beginning. Section 12(a) allows
the industry to charge triple digit interest on that inflated principal. Section 12(a) says that the total amount of
payments required to gain ownership cannot be more than double the “cash
price,” and does not specify how long a contract must be for the
doubling to occur. So if the contract is
for one year, doubling the price is charging 152% interest. (It’s not 100% because the principal is paid
down over time.) Charging more than 30% interest on a rent to own
transaction is currently illegal. At oral argument in the Supreme Court case,
Rent-A-Center acknowledged that maintaining the 30% cap would not force them
out of business. So why would the Legislature wish to lift the cap and make
152% interest legal?
In
addition to allowing an inflated principal and currently illegal interest, the
bill also allows the industry to pile on additional fees. The bill mentions eight different fees as
examples, while making clear that the long list is not exclusive and that more
fees can be charged. The ones it names
are application fees, processing fees, insurance fees, late payment fees,
liability waiver fees, default fees, pick up fees and reinstatement fees.
All
of these fees must be disclosed.
However, disclosure of one widely understood amount is not required--the
annual percentage rate of interest the payments reflect. In Vermont,
the industry must disclose the APR; why should New Jerseyans be denied that
information?
NJPIRG
has been fighting legislation like this bill for close to a decade, and we
acknowledge that this version has more consumer protections than past
versions. If the Legislature wishes to
pass simply those provisions, NJPIRG could wholeheartedly support that
effort. But in current form, passing
A695 gives the committee’s blessing to overcharging the poor up front; adding
interest that is currently criminal; piling endless fees on top of that. We urge the Consumer Affairs Committee to
reject it. Please hold or defeat this
legislation today.
