Testimony for the Economic Matters Committee
HB 997 - Commercial Law - Rental-Purchase Agreements Best Practices Act
Position: The Maryland Public Interest Group supports the passage of HB 213, altering the requirements for reinstating a rental-purchase agreement; altering the time allowed for a consumer to reinstate a rental- purchase agreement; requiring a consumer to pay specified interest and penalties under specified circumstances; requiring a reduction in payments under specified circumstances; requiring a lessor to maintain specified records for a specified amount of time; etc.
The Rent to Own (RTO) Industry: A Problem for Impoverished Consumers
Maryland PIRG is a member of Americans for Financial Reform, a coalition of more than 250 national, state and local consumer, labor, investor, civil rights, community, small business, and senior citizen organizations that have come together to spearhead a campaign for real reform, including fair rules of the road for consumers, and a strong, effective Consumer Financial Protection Agency to set basic safety standards and protect families from loans designed to trick and trap customers. According to research conducted by Americans for Financial Reform , The RTO industry aims its marketing efforts at low income consumers by advertising in minority media, busses, and public housing projects. Data also show that the RTO industry targets military families.
Research from the Federal Trade Commission Bureau of Economics shows that nearly 60% of RTO customers earn less than $25,000 a year, and over 70% had a high school education or less; the same research reports that 67% of RTO customers have children living with them. Many RTO customers simply cannot afford to buy furniture or large appliances outright, so they are forced to pay weekly or monthly installments through an RTO transaction. Although this is more manageable short-term, terms and conditions often end up costing underprivileged families much more long-term.
Under most RTO contracts, the customer will pay between $1000 and $2400 for a major appliance worth as little as $200 retail, if used, and seldom more than $600 retail, if new. Americans for Financial Reform found that the most vulnerable consumers were “in the position of paying three to four times the retail price for products that are subpar to start with.”
The Protection Consumers Need
In addition to unfair cost inflation, RTO stores can charge customers a penalty for early purchase or multiple late charges; they can also include mandatory arbitration laws or personal information from customers not otherwise required by law. Practices like these and others disenfranchise consumers who are already under financial strain.
Maryland PIRG supports legislation that prevents financial practices from misleading or taking advantage of consumers. HB 997 would prevent the RTO industry from using misleading financial practices to further impoverish consumers who are already financially disadvantaged. For that reason, Maryland PIRG supports the passage of HB 997 and urges a favorable report.