Rent-to-own: Fixin’ a hole

This morning, I sat in on a House Appropriations Committee hearing on S.73, a bill that would set limits on the rent-to-own industry — an industry that’s virtually unregulated and preys on cash-poor Vermonters.

For those unfamiliar, RTOs offer household furnishings and appliances with very little cash up front, but interest rates that’d make a banker blush. Not to mention undisclosed fees and charges. According to Legislative Counsel David Hall, current state law gives the Attorney General rule-making authority; but RTOs write their contracts in a way that effectively puts them beyond the reach of current law.

Hey, I’m sure that’s just a coincidence.

The result is a Wild West marketplace that, according to VPIRG, results in consumers “paying many times the original price of the original item- far more than they would pay if they purchased the item from a traditional retail establishment.”

The bill would establish price caps and disclosure requirements on the industry.

The price calculation starts with the merchant’s cost for an item. Multiply that by 1.75%, and you get the maximum allowable cash price. Multiply that by 2%, and you get the maximum allowable total cost to the consumer.

If that seems strict, well, according to Appropriations chair Mitzi Johnson, the bill would allow an interest rate as high as 24.5% on a two-year rent-to-own deal. That would seem to allow plenty of room for profit.

Republican lawmakers held a noontime caucus, at which they were told why S.73 is a bad idea. Rep. Michael Marcotte said the bill “would effectively kill the industry in Vermont.”

Then a few minutes later, he said that S.73 “pretty much codifies” what the big players in the industry, like Aaron’s and Rent-A-Center, are already doing.

Do you sense a contradiction there?

There was also a philosophical objection to capping prices and limiting the marketplace, and an unlikely appeal to protect poor consumers’ access. “This is a crappy business model, a crappy thing to do,” said Rep. Heidi Scheuermann, “but sometimes it’s the only option for people.”

Well, yeah, but as with payday lenders, the industry at its worst is a parasite, draining the resources of people with no good options.

The bill seems to be on track to pass in this session. Even Republicans acknowledged that it has broad support.

This is a good example of something I’ve said before: Every regulation has its genesis in an abuse of the marketplace. If we could trust producers and merchants to act fairly, we wouldn’t need most of our consumer protection laws. S.73 fills some notable holes in Vermont law: including rent-to-own, but also internet dating fraud and phony discount-membership programs. It would also establish financial literacy education standards, which would go a long way to giving Vermonters the knowledge they need to avoid fraudsters, grifters, and predators.

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