107TH CONGRESS REPT. 107–590 " ! HOUSE OF REPRESENTATIVES 2d Session Part 2

CONSUMER RENTAL PURCHASE AGREEMENT ACT

SEPTEMBER 9, 2002.—Committed to the Committee of the Whole House on the State

of the Union and ordered to be printed

Mr. SENSENBRENNER, from the Committee on the Judiciary,

submitted the following

R E P O R T

together with

DISSENTING AND SUPPLEMENTAL VIEWS

[To accompany H.R. 1701]

[Including cost estimate of the Congressional Budget Office]

The Committee on the Judiciary, to whom was referred the bill

(H.R. 1701) to amend the Consumer Credit Protection Act to assure

meaningful disclosures of the terms of rental-purchase agreements,

including disclosures of all costs to consumers under such agreements, to provide certain substantive rights to consumers under

such agreements, and for other purposes, having considered the

same, reports favorably thereon with an amendment and recommends that the bill as amended do pass.

CONTENTS

Page

The Amendment ...................................................................................................... 2

Purpose and Summary ............................................................................................ 2

Background and Need for the Legislation ............................................................. 2

Hearings ................................................................................................................... 3

Committee Consideration ........................................................................................ 3

Vote of the Committee ............................................................................................. 3

Committee Oversight Findings ............................................................................... 4

Performance Goals and Objectives ......................................................................... 4

New Budget Authority and Tax Expenditures ...................................................... 4

Congressional Budget Office Cost Estimate .......................................................... 4

Constitutional Authority Statement ...................................................................... 7

Section-by-Section Analysis and Discussion .......................................................... 7

Changes in Existing Law Made by the Bill, as Reported ..................................... 8

Markup Transcript .................................................................................................. 9

Dissenting Views ..................................................................................................... 53
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1 15 U.S.C. 1601 et seq.

Dissenting Views ..................................................................................................... 55

Supplemental Views ................................................................................................ 57

The amendment (made to the committee print document containing the text of the amendment as reported by the Committee

on Financial Services) is as follows:

In section 1014(b)(2) of the matter proposed to be added by section 3, strike ‘‘includes’’ and insert ‘‘includes, but is not limited to,’’.

PURPOSE AND SUMMARY

The purpose of H.R. 1701, the ‘‘Consumer Rental Purchase

Agreement Act,’’ is to set a ‘‘Federal floor’’ for consumer protection

in rental-purchase transactions. Most States currently regulate

rental-purchase transactions as leases; however, the scope and consumer protection requirements of these laws vary significantly by

State. The bill improves consumer protections in 32 States, while

allowing other States to adopt more stringent protections. Currently, there is no Federal oversight or regulation of the rent-toown industry. This bill amends the Consumer Credit Protection Act

to provide such oversight and regulation.1

BACKGROUND AND NEED FOR THE LEGISLATION

On July 18, 2002, the Committee on Financial Services reported

H.R. 1701, the ‘‘Consumer Rental Purchase Agreement Act.’’ (See

H. Rept. 107–590 Part 1.) Thereafter the bill was sequentially referred to the Committee on the Judiciary for a period not later

than September 9, 2002. The sections within the Committee’s jurisdiction deal with civil liabilities, criminal liabilities, enforcement,

and claims against the United States.

H.R. 1701 amends the Consumer Protection Act to provide new

Federal requirements in all rent-to-own agreements. In a rent-toown agreement the consumer typically leases a product for a month

and has the option to return the product with no obligation or penalty, pay to keep the product another month, or purchase the product. The consumer usually acquires ownership of the product if it

is leased for a specified amount of time, usually 18 months. Every

year, millions of Americans enter ‘‘rent-to-own’’ agreements because

they cannot otherwise afford the purchase price, qualify for credit,

or need the product for a short period of time.

A recent Federal Trade Commission (FTC) staff report, ‘‘Survey

of Rent-to-Own Consumers’’ (hereinafter Survey) has provided a

comprehensive review of rent-to-own transactions and has served

as the basis for H.R. 1701. While the Survey details many aspects

of the typical consumer’s rent-to-own experience, 75 percent of

those surveyed were satisfied. Because the ‘‘rent-to-own’’ industry

is not regulated by Federal law, a patchwork of State laws, regulations, and judicial interpretation currently serve as the only consumer protection for rent-to-own consumers. As a result, the Survey identifies the following inadequacies under the existing State

based regulation of the ‘‘rent-to-own’’ industry: disclosure of total

cost and other terms of purchase; annual percentage rate disclosures; price restrictions; regulation of collection practices; and regulation of reinstatement rights. While Federal legislation to regulate
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the ‘‘rent-to-own’’ industry has been considered by the Congress for

more than a decade, H.R. 1701 provides consumers with more substantive rights than prior bills and addresses all of the inadequacies raised by the Survey.

HEARINGS

No hearings were held on H.R. 1701.

COMMITTEE CONSIDERATION

On Thursday, September 5, 2002, the Committee met in open

session and ordered favorably reported the bill H.R. 1701, with

amendment, 14 ayes to 12 nays, a quorum being present.

VOTE OF THE COMMITTEE

1. Motion to report favorably the bill H.R. 1701 with an amendment was agreed to 14 ayes to 12 nays.

ROLLCALL NO. 1

Ayes Nays Present

Mr. Hyde ............................................................................................................ X

Mr. Gekas .......................................................................................................... X

Mr. Coble ........................................................................................................... X

Mr. Smith (Texas) ............................................................................................. X

Mr. Gallegly ....................................................................................................... X

Mr. Goodlatte .................................................................................................... X

Mr. Chabot ........................................................................................................ X

Mr. Barr .............................................................................................................

Mr. Jenkins ........................................................................................................ X

Mr. Cannon ....................................................................................................... X

Mr. Graham .......................................................................................................

Mr. Bachus ........................................................................................................ X

Mr. Hostettler .................................................................................................... X

Mr. Green ..........................................................................................................

Mr. Keller ........................................................................................................... X

Mr. Issa ............................................................................................................. X

Ms. Hart ............................................................................................................ X

Mr. Flake ........................................................................................................... X

Mr. Pence ..........................................................................................................

Mr. Forbes ......................................................................................................... X

Mr. Conyers ....................................................................................................... X

Mr. Frank ........................................................................................................... X

Mr. Berman .......................................................................................................

Mr. Boucher .......................................................................................................

Mr. Nadler ......................................................................................................... X

Mr. Scott ........................................................................................................... X

Mr. Watt ............................................................................................................ X

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................

Ms. Waters ........................................................................................................ X

Mr. Meehan ....................................................................................................... X

Mr. Delahunt ..................................................................................................... X

Mr. Wexler .........................................................................................................

Ms. Baldwin ......................................................................................................

Mr. Weiner .........................................................................................................

Mr. Schiff .......................................................................................................... X

Mr. Sensenbrenner, Chairman .......................................................................... X

Total ................................................................................................ 14 12
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COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 3(c)(1) of rule XIII of the Rules of the

House of Representatives, the Committee reports that the findings

and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

PERFORMANCE GOALS AND OBJECTIVES

H.R. 1701 does not authorize funding. Therefore, clause 3(c) of

rule XIII of the Rules of the House of Representatives is inapplicable.

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

Clause 3(c)(2) of House rule XIII is inapplicable because this legislation does not provide new budgetary authority or increased tax

expenditures.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the

House of Representatives, the Committee sets forth, with respect to

the bill, H.R. 3951, the following estimate and comparison prepared

by the Director of the Congressional Budget Office under section

402 of the Congressional Budget Act of 1974:

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, September 6, 2002.

Hon. F. JAMES SENSENBRENNER, Jr., Chairman,

Committee on the Judiciary,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1701, the Consumer

Rental Purchase Agreement Act.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contacts are Ken Johnson (for Federal costs), who can be reached at 226–2860, Greg Waring (for the

State and local impact), who can be reached at 225–3220, and

Paige Piper/Bach (for the private-sector impact), who can be

reached at 226–2940.

Sincerely,

DAN L. CRIPPEN, Director.

Enclosure

cc: Honorable John Conyers, Jr.

Ranking Member

H.R. 1701—Consumer Rental Purchase Agreement Act.

SUMMARY

H.R. 1701 would impose several restrictions on ‘‘rent-to-own’’ transactions, wherein a consumer rents an item for a short time

and retains the option to buy the item at the end of the rental period. For example, sellers would be required to disclose certain in-
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formation about the terms of the rent-to-own contract and would be

prohibited from assessing most fees for such contracts.

Regulations to implement H.R. 1701 would be developed by the

Board of Governors of the Federal Reserve System. Also, the Federal Trade Commission (FTC) would enforce the bill’s provisions

under the authority provided by the Federal Trade Commission

Act, which allows the FTC to punish violations with civil penalties.

Finally, H.R. 1701 would create new criminal penalties for merchants who knowingly fail to provide information to rent-to-own

consumers as required under the bill.

Assuming appropriation of the necessary amounts, CBO estimates that implementing

H.R. 1701 would cost the FTC about $650,000 a year. Because

the bill would create new civil and criminal penalties and would

impose costs on the Federal Reserve, we also estimate that the bill

would have negligible effects on both direct spending and revenues.

Therefore, pay-as-you-go procedures would apply.

H.R. 1701 contains intergovernmental mandates as defined in

the Unfunded Mandates Reform Act (UMRA), but CBO estimates

that complying with the mandates would result in no costs to

State, local, or tribal governments. Therefore, the threshold established by UMRA ($58 million in 2002, adjusted annually for inflation) would not be exceeded.

H.R. 1701 would impose private-sector mandates, as defined by

UMRA, but CBO estimates that the direct cost of those mandates

would fall below the annual threshold established by UMRA ($115

million in 2002, adjusted annually for inflation).

BASIS OF ESTIMATE

According to the FTC, the agency would need to hire about five

new attorneys and investigators to enforce the restrictions that

would be imposed by H.R. 1701. CBO estimates that these new

hires would cost about $650,000 a year, subject to the availability

of appropriated funds.

The regulations to implement this bill would be written by the

Federal Reserve. Budgetary effects on the Federal Reserve are recorded in the budget as changes in revenues (governmental receipts). Based on information from the Federal Reserve, CBO estimates that enacting H.R. 1701 would reduce such revenues by less

than $500,000 a year.

Because those who violate the provisions of H.R. 1701 could be

subject to civil and criminal fines, the Federal Government might

collect additional fines if the bill is enacted. Collections of civil and

criminal penalties are classified in the budget as revenues. Based

on information from the FTC, however, CBO estimates that any

such increase in collections would be less than $500,000 per year.

Collections of criminal fines are deposited in the Crime Victims

Fund and spent in subsequent years. Because any increase in direct spending would equal the amount of fines collected (with a

lag), the additional direct spending also would be negligible.

PAY-AS-YOU-GO CONSIDERATIONS

The Balanced Budget and Emergency Deficit Control Act sets up

pay-as-you-go procedures for legislation affecting direct spending or
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receipts. Although H.R. 1701 would affect both direct spending and

receipts, CBO estimates that the net effects would be insignificant.

ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

H.R. 1701 would annul State laws that are inconsistent with

Federal regulations for rental-purchase agreements. Merchants

would be held harmless from liability under the State law in question. The bill also would supersede any State law that treats a

rental-purchase agreement as a form of consumer credit or a creation of debt, and States would no longer be able to make an independent determination of the nature of the rental-purchase agreement. Such preemptions would be intergovernmental mandates as

defined in UMRA. CBO estimates, however, that the preemptions

would not affect the budgets of State, local, or tribal governments

because they would impose no duty on States that would result in

additional spending. Therefore, the threshold established by UMRA

($58 million in 2002, adjusted annually for inflation) would not be

exceeded.

ESTIMATED IMPACT ON THE PRIVATE SECTOR

H.R. 1701 would impose private-sector mandates, as defined by

UMRA, but CBO estimates that the direct cost of those mandates

would fall below the annual threshold established by UMRA ($115

million in 2002, adjusted annually for inflation).

The bill would require merchants who provide the use of property through a rental-purchase agreement to provide certain disclosures to consumers in those agreements and in advertisements.

Under the bill, such merchants also would be required to provide

merchandise labeling and to furnish statements of account to customers. In addition, the bill would prohibit those merchants from

charging certain additional fees and from entering the premises of

customers to reclaim property without the customer’s permission.

Currently, there are 47 States that require some type of disclosure

and labeling for such merchants. According to industry representatives, the cost for all such merchants to provide the required disclosures and adhere to the prohibitions in the bill would be small.

Therefore, CBO estimates that the direct cost to comply with the

mandates would fall below the annual threshold established by

UMRA ($115 million in 2002, adjusted annually for inflation).

PREVIOUS CBO ESTIMATE

On July 10, 2002, CBO transmitted a cost estimate for H.R. 1701

as ordered reported by the House Committee on Financial Services

on June 27, 2002. The two versions of the bill are nearly identical,

and the estimated costs are the same. The two versions of the bill

contain the same mandates and the aggregate cost of those mandates fall below the annual thresholds established in UMRA.

ESTIMATE PREPARED BY:

Federal Spending: Ken Johnson (226–2860)

Impact on the Federal Reserve: Andrew Shaw (226–2680)

Impact on State, Local, and Tribal Governments: Greg Waring

(225–3220)

Impact on the Private Sector: Paige Piper/Bach (226–2940)
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2 Id.

ESTIMATE APPROVED BY:

Peter H. Fontaine

Deputy Assistant Director for Budget Analysis

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House

of Representatives, the Committee finds that the Constitutional

Authority for this legislation in article 1, section 8, clause 3 (relating to the power to regulate interstate commerce); and article 1,

section 8, clause 18 (relating to making all laws necessary and

proper for carrying into execution powers vested by the Constitution in the Government of the United States).

SECTION-BY-SECTION ANALYSIS AND DISCUSSION

The following section by section analysis describes the sections of

H.R. 1701 as reported by the Committee on the Judiciary. For an

analysis of provisions contained in title X not referred to the Committee on the Judiciary, see H. Rept. 107–590 Part I for analysis.

TITLE X—RENTAL PURCHASE TRANSACTIONS

Section 1012. Civil Liability.

This section adopts civil liability provisions modeled after the

Truth-in-Lending Act.2 Any merchant that fails to comply with any

requirement of this title, dealing with any consumer, is liable to

the consumer. Any consumer may bring an action in any United

States District Court or any other court of competent jurisdiction

before the end of a 1-year period beginning on the date of the last

payment made by the consumer under the rental-purchase agreement. In addition, this subsection is not a bar against a consumer

from collecting an obligation pursuant to a rental-purchase agreement brought after the 1 year period, except as otherwise provided

by State law.

Section 1013. Additional Grounds for Civil Liability.

This section provides that a merchant is liable for price tag and

advertising violations, if a consumer suffers actual damages. In instances where a merchant engages in a pattern or practice of price

tag or advertising violations, the FTC and State Attorney Generals

are authorized to enforce sanctions against such merchant, including: an order to cease and desist from such practices; and civil

money penalty of an amount the court may impose based on factors

the court may determine to be appropriate.

Section 1014. Liability of Assignees.

This section provides that the term ‘‘merchant,’’ includes an assignee, but limits an assignee’s liability to violations apparent on

the face of a rental-purchase agreement, and provides that there is

no liability when the assignment is involuntary. A violation that is

apparent on the face of a rental-purchase agreement includes but

is not limited to a disclosure that can be determined to be incomplete or inaccurate from the face of the agreement. A consumer’s
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3 15 U.S.C. 41 et seq. 4 15 U.S.C. 1601 et seq.

written acknowledgment of receipt of disclosure is conclusive proof

that disclosure was made even if the assignee has no knowledge

whether the disclosure was in compliance with this title when the

assignee acquired the rental-purchase agreement. This section does

not limit or alter liability established in sections 1012 and 1013 of

this title.

Section 1016. Enforcement.

This section provides that the Federal Trade Commission (FTC)

has enforcement authority and establishes that a violation of the

act is also a violation of the FTC Act.3 It also allows State Attorney

Generals to enforce the act in State or Federal court. State Attorney Generals are required to provide prior notice of any civil action

pursuant to this section to the FTC, which may intervene in such

action.

Section 1017. Criminal Liability for Willful and Knowing Violation.

This section provides criminal liability, $5,000 and 1 year

imprsionment, for willful and knowing violations of the act in accordance with other violations of the Consumer Credit Protection

Act.4

Section 1019. Effect on Government Agencies.

This section provides that no civil liabilities shall arise under

this act for Federal or State government entities.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported by the Committee on Financial Services, are shown in

Report 107–590 part 1, filed on July 18, 2002.

The Committee on the Judiciary adopted an amendment

(shown at the beginning of this report) to the bill as reported by

the Committee on Financial Services. Changes in provisions of existing law that would result from the amendment and differ from

the changes that would result from the bill as reported by the Committee on Financial Services is shown as follows (new matter is

printed in italics and existing law in which no change is proposed

is shown in roman):

TITLE X OF THE CONSUMER CREDIT PROTECTION ACT

TITLE X—RENTAL-PURCHASE

TRANSACTIONS

* * * * * * *

SEC. 1014. LIABILITY OF ASSIGNEES.

(a) * * *

(b) LIABILITIES OF ASSIGNEES.—
9

(1) * * *

(2) APPARENT VIOLATION DEFINED.—For purposes of this

subsection, a violation that is apparent on the face of a rentalpurchase agreement includes, but is not limited to, a disclosure

that can be determined to be incomplete or inaccurate from the

face of the agreement.

* * * * * * *

MARKUP TRANSCRIPT

BUSINESS MEETING

THURSDAY, SEPTEMBER 5, 2002

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE JUDICIARY,

Washington, DC.

The Committee met, pursuant to notice, at 10:03 a.m., in Room

2141, Rayburn House Office Building, Hon. F. James Sensenbrenner, Jr. [Chairman of the Committee] presiding.

Chairman SENSENBRENNER. The Committee will be in order. The

Chair notes the presence of a working quorum.

Let me say, as far as scheduling is concerned today, it is the

Chair’s intention only to bring up H.R. 1701. We have a sequential

referral that expires on Monday, and we have to complete action

on H.R. 1701, even if it means coming back after the lunch hour

to do this.

It is the Chair’s intention also not to take any other matters up

today, because I am aware of several proposed amendments to H.R.

1701.

So pursuant to notice, I now call up the bill H.R. 1701, the ‘‘Consumer Rental Purchase Agreement Act,’’ for purposes of markup

and move its favorable recommendation to the House.

Mr. CONYERS. Mr. Chairman?

Chairman SENSENBRENNER. The gentleman from Michigan?

Mr. CONYERS. I have an amendment at the desk.

Chairman SENSENBRENNER. May I make an opening statement?

And you may make an opening statement.

Mr. CONYERS. Okay. [Laughter.]

Chairman SENSENBRENNER. Okay.

Without objection, the bill will be considered as read and open

for amendment at any point.

[The bill, H.R. 1701, follows:]
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Chairman SENSENBRENNER. And the Chair recognizes himself for

5 minutes to explain the bill.

This bill, the Consumer Rental Purchase Agreement Act, was reported by the Committee on Financial Services on July 18. The

Speaker sequentially referred the bill to this Committee to consider

several provisions that fall within the Judiciary Committee’s jurisdiction. This referral expires next Monday, September 9.

H.R. 1701 amends the Consumer Protection Act to provide new

Federal requirements in all rent-to-own agreements. In a rent-toown agreement, the consumer typically leases a product for a

month and has the option to return the product with no obligation

or penalty, pay to keep the product for another month, or purchase

the product. Also, the consumer usually acquires ownership of the

product if it is leased for a specified amount of time, usually 18

months.

Each year, millions of Americans enter rent-to-own agreements

because they can’t otherwise afford the purchase price, qualify for

credit, or don’t need the product for more than a short period of

time. While these agreements have grown in popularity, they are

regulated by numerous State-based consumer protection laws. Although a recent survey by the FTC staff indicated that 75 percent

of rent-to-own consumers were satisfied by their experience, that

survey identified a number of inadequacies in State rental-purchase disclosure laws.

H.R. 1701 attempts to address these concerns by establishing

consistent disclosure requirements and substantive rights for consumers, which enhance the existing law of some States and permits

others to adopt or maintain more stringent laws. Provisions of the

bill within the jurisdiction of this Committee include sections 1012,

1013, 1014, 1016, 1017, and 1019. Although I am not aware of any

amendments from our side, only these sections will be open for

amendment.

I would point out that it is my intention to vote against this bill

because I am opposed to the Federal preemption of the States’ discretion in this area.

And I yield to the gentleman from Michigan, Mr. Conyers, for

whatever remarks he wishes to make.

Mr. CONYERS. Thank you, Mr. Chairman and Members of the

Committee.

This is a bill that has gone through very important changes, and

it’s almost getting to be acceptable, but it’s probably not quite there

yet.

The controlling question for some of us is, why do we want to tell

States how to protect their own consumers? Where are the States

rights people when we need them?

Chairman SENSENBRENNER. Right here.

Mr. CONYERS. ‘‘Right here,’’ says the Chairman. [Laughter.]

Okay, that’s one. And I see one more in the audience.

But the point is that I know we have a lot of Federal jurisdiction

to explore, but this is one of the most exotic grabs, at the Federal

level, that I have heard of lately.

Now, a word about rent-to-own chains. They are not your ideal

kind of businesspeople, by and large. I immediately exempt the five

firms that are good. But the rest of them leave a lot to be desired.
45

Their rationale for charging more than they ought to is that nobody would work in the poor communities if it weren’t for them,

with their right to pick up a little extra money as a premium for

working in neighborhoods and communities that might not have

anything at all there. So they would like us to salute them for that.

But they have been sued—$16 million worth of lawsuits in Wisconsin, $60 million in New Jersey, $30 million in Minnesota, and

so on. So consumers need more protection from those who engage

in predatory financial practices. And I’m hopeful that the part of

the bill that we have jurisdiction over will serve to improve this

bill. And I hope that the Committee that has the rest of it will do

likewise.

And I ask that my entire statement be inserted in the record.

Chairman SENSENBRENNER. Without objection, so ordered.

Mr. CONYERS. I yield back.

Chairman SENSENBRENNER. And without objection, all Members’

opening statements may be inserted in the record at this point.

[The prepared statement of Mr. Conyers follows:]

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN

Although the version of H.R. 1701 that is before us is an improvement over the

bill that was introduced, I still have significant concerns with the legislation because it ties the hands of States in protecting consumers.

It is ironic that although the Majority professes to respect States’ Rights, in the

area of tort reform and consumer protections, the Committee brings up bills that

would undermine States’ ability to perform their traditional duties in these areas.

As it stands now, H.R. 1701 would preempt States’ ability to treat rent-to-own

contracts as a credit sale, retail installment sale, or any other form of consumer

credit. This means that the States cannot require rent-to-own companies to comply

with applicable usury and finance charge limits.

The bill also prevents States from requiring rent-to-own companies to disclose a

percentage rate calculation or an annual percentage rate, or ‘‘APR.’’

The fact is that the bill preempts State laws in Wisconsin, New Jersey, Minnesota, North Carolina, and Vermont. The bill also prohibits States from adopting

similar regimes in the future.

Why are we telling States how to protect their own consumers?

Maybe it’s because State consumer law violations have produced legal judgments

or settlements against rent-to-own chains amounting to $16 million in Wisconsin,

$60 million in New Jersey, and $30 million in Minnesota.

Unable to win under these state laws, or to overturn them at the State level, the

Majority would like Congress to preempt them.

It is not surprising, then, that the bill is opposed by every major consumer organization.

Consumers need more—not less—protection from predatory financial practices. I

cannot support a bill that undermines State pro-consumer laws.

[The prepared statement of Ms. Jackson Lee follows:]

PREPARED STATEMENT OF THE HONORABLE SHEILA JACKSON LEE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TEXAS

Today I speak out in opposition to H.R. 1701. This bill does great harm to our

nation’s consumers while protecting the rent-to-own industry with weak regulations

that are not suited to the true nature of the type of transaction these contracts really represent—credit-sales contracts.

Once again, we hasten to pass a bill that unfairly places the interests of common

consumers below the interests of industry and business. Unfortunately, there are

those in the rent-to-own business who create these contracts without providing full

disclosure to the consumers who use them—consumers who ultimately intend to

own the television, furniture or other good contemplated in the rent-to-own agreement. When these consumers fail to make payment, instead of giving them reasonable terms and conditions prolonging the contract, or reinstating the contract owners of these contracts often take possession of these goods—even after the con-
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sumers has made significant payments under the contract in excess of the actual

cost of the goods.

The measure also raises another issue that Republicans often use as a battle cry

when they support regulation that oppresses the rights of individuals or threatens

what they term as undue burdens on business and industry. I cannot count the

number of times that I have heard Republicans raise the issue of states rights arguing that states know best and decrying Federal encroachment upon state matters.

However, when they want to elevate the rights of our nation’s industries over the

rights of individual consumers, states rights goes right out of the door. This measure tramples on the decisions of state regulators to regulate rent-to- own contracts

as credit sales and turns federalism on its head. H.R. 1701 would preempt strong

state laws regulating rent-to-own contracts from New Jersey, Minnesota, Wisconsin

and Vermont. This measure preempts stronger state laws regulating rent-to-own

contracts and is opposed by 52 state and territorial Attorneys General.

Consumer advocates oppose this measure. Furthermore, all of the government

witnesses during the Judiciary Subcommittee on Commercial and Administrative

Law on this bill, including witnesses representing the Wisconsin Attorney General,

the Federal Trade Commission and the Federal Reserve declined to recommend action on H.R. 1701, further making the argument that this is nothing more than a

giveaway to the industry. Yet, we still see this measure progressing in the House.

I do not believe at this juncture, in our nation’s history, that this legislation reflects Congressional concern for a nation with a stagnant economy and teetering on

the brink of war. At a time when all of our nation’s citizens are particularly concerned for their well being we should not pass legislation that will allow industry

to capitalize on those citizens with the most exposure to these turbulent times. For

these reasons I do not support H.R. 1701, and if present, I would have voted no.

Chairman SENSENBRENNER. Are there amendments?

Mr. CONYERS. I have an amendment at the desk.

Chairman SENSENBRENNER. The clerk will report the amendment.

The CLERK. Amendment to H.R. 1701, offered by Mr. Conyers.

On page 27, line 16, strike ‘‘includes’’ and insert the following——

Mr. CONYERS. I ask unanimous consent that the amendment be

considered as read.

Chairman SENSENBRENNER. Without objection.

[The amendment follows:]

Chairman SENSENBRENNER. And the gentleman is recognized for

5 minutes.

Mr. CONYERS. I thank the Chair.

This is the most friendly amendment that I could possibly put together to offer for this bill. It makes the liability provisions of the

bill consistent with the Truth in Lending Act. Under Truth in

Lending, a prerequisite for assigning liability is that the violation

be apparent on the face of the disclosure, but not limited to a disclosure. And in H.R. 1701, the definition of ‘‘apparent violation’’

leaves out the critical terms ‘‘but is not limited to.’’

What this provision does, ladies and gentlemen, is add these

terms to make the provision consistent with the Truth in Lending

Act, and it’s no more or less than that. And I would return any

time I have, unless there are any questions from my colleagues.
47

Chairman SENSENBRENNER. The gentleman yields back the balance of his time.

The question is on agreeing to the amendment offered by the

gentleman from Michigan, Mr. Conyers.

Those in favor will say aye.

Opposed, no.

The ayes appear to have it. The ayes have it, and the amendment is agreed to.

Are there further amendments? There are no further amendments. Is there a reporting quorum? Without objection, the previous question is ordered on reporting the bill. And the Chair

would ask Members to stay put, and we will get the dragnet out

for Members who are absent.

[Intervening business.]

Chairman SENSENBRENNER. The Chair notes the presence of a

reporting quorum. The unfinished business is the motion to favorably report the bill H.R. 1701 as amended.

Those in favor will say aye.

Ms. WATERS. Recorded vote, Mr. Chairman.

Chairman SENSENBRENNER. Okay.

Those opposed, no.

The ayes appear to have it. A recorded vote is demanded. Those

in favor of reporting the bill H.R. 1701 favorably as amended will,

as your names are called, answer aye. Those opposed, no. And the

clerk will call the role.

The CLERK. Mr. Hyde?

Mr. HYDE. Aye.

The CLERK. Mr. Hyde, aye.

Mr. Gekas?

[No response.]

The CLERK. Mr. Coble?

Mr. COBLE. Aye.

The CLERK. Mr. Coble, aye.

Mr. Smith?

Mr. SMITH. No.

The CLERK. Mr. Smith, no.

Mr. Gallegly?

Mr. GALLEGLY. No.

The CLERK. Mr. Gallegly, no.

Mr. Goodlatte?

[No response.]

The CLERK. Mr. Chabot?

Mr. CHABOT. Aye.

The CLERK. Mr. Chabot, aye.

Mr. Barr?

[No response.]

The CLERK. Mr. Jenkins?

Mr. JENKINS. Aye.

The CLERK. Mr. Jenkins, aye.

Mr. Cannon?

Mr. CANNON. Aye.

The CLERK. Mr. Cannon, aye.

Mr. Graham?

[No response.]

The CLERK. Mr. Bachus?
48

Mr. BACHUS. Aye.

The CLERK. Mr. Bachus, aye.

Mr. Hostettler?

Mr. HOSTETTLER. Aye.

The CLERK. Mr. Hostettler, aye.

Mr. Green?

[No response.]

The CLERK. Mr. Keller?

Mr. KELLER. Aye.

The CLERK. Mr. Keller, aye.

Mr. Issa?

Mr. ISSA. Aye.

The CLERK. Mr. Issa, aye.

Ms. Hart?

Ms. HART. Aye.

The CLERK. Ms. Hart, aye.

Mr. Flake?

[No response.]

The CLERK. Mr. Pence?

[No response.]

The CLERK. Mr. Forbes?

Mr. FORBES. Aye.

The CLERK. Mr. Forbes, aye.

Mr. Conyers?

Mr. CONYERS. No.

The CLERK. Mr. Conyers, no.

Mr. Frank?

Mr. FRANK. No.

The CLERK. Mr. Frank, no.

Mr. Berman?

[No response.]

The CLERK. Mr. Boucher?

[No response.]

The CLERK. Mr. Nadler?

Mr. NADLER. No.

The CLERK. Mr. Nadler, no.

Mr. Scott?

Mr. SCOTT. No.

The CLERK. Mr. Scott, no.

Mr. Watt?

Mr. WATT. No.

The CLERK. Mr. Watt, no.

Ms. Lofgren?

[No response.]

The CLERK. Ms. Jackson Lee?

[No response.]

The CLERK. Ms. Waters?

Ms. WATERS. No.

The CLERK. Ms. Waters, no.

Mr. Meehan?

[No response.]

The CLERK. Mr. Delahunt?

Mr. DELAHUNT. No.

The CLERK. Mr. Delahunt, no.

Mr. Wexler?
49

[No response.]

The CLERK. Ms. Baldwin?

[No response.]

The CLERK. Mr. Weiner?

[No response.]

The CLERK. Mr. Schiff?

Mr. SCHIFF. No.

The CLERK. Mr. Schiff, no.

Mr. Chairman?

Chairman SENSENBRENNER. No.

The CLERK. Mr. Chairman, no.

Chairman SENSENBRENNER. Are there additional Members who

wish to cast or change their vote?

The gentleman from Arizona, Mr. Flake?

Mr. FLAKE. No.

The CLERK. Mr. Flake, no.

Chairman SENSENBRENNER. The gentleman from California, Mr.

Gallegly.

Mr. GALLEGLY. How am I recorded?

The CLERK. Mr. Chairman, Mr. Gallegly is recorded as a no.

Mr. GALLEGLY. Aye.

The CLERK. Mr. Gallegly, aye.

Chairman SENSENBRENNER. The gentleman from Pennsylvania,

Mr. Gekas.

Mr. GEKAS. Aye.

The CLERK. Mr. Gekas, aye.

Chairman SENSENBRENNER. Further Members who wish to cast

or change—the gentleman from Virginia, Mr. Goodlatte.

Mr. GOODLATTE. Aye.

The CLERK. Mr. Goodlatte, aye.

Chairman SENSENBRENNER. The gentleman from Massachusetts,

Mr. Meehan.

Mr. MEEHAN. Mr. Meehan, no.

Chairman SENSENBRENNER. Any further Members who wish to

cast or change their votes?

If not, the clerk will report.

The CLERK. Mr. Chairman, there are 14 ayes and 12 noes.

Chairman SENSENBRENNER. And the motion to report favorably

is agreed to.

Without objection, the bill will be reported favorably to the

House in the form of a single amendment in the nature of a substitute, incorporating the amendments adopted here today.

Without objection, the Chairman is authorized to move to go to

conference pursuant to House rules. Without objection, the staff is

directed to make any technical and conforming changes. And all

Members will be given 2 days, as provided by the House rules, in

which to submit additional, dissenting, supplemental, or minority

views.

The Chair said as soon as we got rid of H.R. 1701, we would

postpone consideration of the other items on the agenda until the

next markup.

The Committee is adjourned.

Ms. WATERS. Mr. Chairman? Mr. Chairman, unanimous consent

to place into the record explanation of the opposition to the recently

passed 1701.
50

Chairman SENSENBRENNER. Those statements were already

granted by unanimous consent. Without objection, unanimous consent is granted to put any additional statements either by Members of the Committee or by outside groups into the record.

[The prepared statement of the U.S. Public Interest Research

Group follows:]
51

Chairman SENSENBRENNER. And the Committee is adjourned.

[Whereupon, at 10:39 a.m., the Committee was adjourned.]

(53)

1The two largest, nationwide rent-to-own chains have been subject to numerous investigations

and lawsuits in the past several years. Rent-Way, Inc. has been the subject of both internal and

external investigations for long-term accounting improprieties that substantially understated

the company’s expenses, reportedly by as much as $127 million during one two-year period.

Queena Sook Kim, Rent-Way Details Improper Bookkeeping, Expenses Were Artificially Cut by

$127 Million, Report Says, Wall St. J., June 8, 2001. Likewise, a number of shareholder suits

were filed earlier this year against Rent-A-Center, Inc., charging the company with making false

statements regarding quarterly earnings and future prospects that were intended to mislead the

public and benefit secondary stock offerings by company executives. Cauley Geller Bowman &

Coates, LLP Announces Class Action Lawsuit Against Rent-A-Center Inc. on Behalf of Investors,

www.morningstar.com, Jan. 30, 2002. Furthermore, Rent-A-Center also recently paid millions

of dollars to settle class action lawsuit alleging both racial and gender discrimination. Rent-ACenter, Inc. Announces Settlement in Principle of Gender Litigation, www.yahoo.com, Nov. 1,

2001; Rent-A-Center Settles Suit Alleging Racial Discrimination, www.kansascity.bcentral.com,

Oct. 26, 1998. 2 H.R. 1701, Sec. 1018.

3Letter from National Association of Attorneys General to House Committee on Financial Institutions, Subcommittee on Financial Institutions and Consumer Credit, Sept. 5, 2001.

DISSENTING VIEWS

Although the version of H.R. 1701 that the Committee on the Judiciary considered is an improvement over the bill that was introduced, we still have significant concerns with the legislation because it preempts strong State consumer protection laws, particularly those of Wisconsin, New Jersey, Minnesota, and Vermont.

It is ironic that although many in the Majority profess to respect

States’ rights, this bill would undermine States’ ability to perform

their traditional functions with respect to consumer protection. Although federal regulation is appropriate to set minimum standards,

we should not prohibit States from protecting their own consumers

in the manner they see fit. This is especially true for the rentalpurchase or ‘‘rent-to-own’’ industry,1 whose low-income customer

base is most in need of protection from usurious costs and unfair

practices.

H.R. 1701 expressly supersedes State laws that treat a rent-toown agreement as a credit sale, and that require the disclosure of

a percentage rate calculation, time-price differential, or an annual

percentage rate (‘‘APR’’).2 As such, rent-to-own transactions cannot

be subjected to state usury laws and finance charge limits, as well

as APR and other meaningful disclosures.

H.R. 1701 is opposed by 52 Attorneys General, which criticized

the bill’s preemption of State laws that regulate rent-to-own transactions as a credit sale or similar arrangement or that require the

disclosure to consumers of effective interest or annual percentage

rates.3 The National Association of Attorneys General wrote, in opposition to H.R. 1701, ‘‘Consumer protection, including in the area of consumer credit,

has historically been an appropriate matter for State regulation,

alone or in concert with federal authorities. Thus, a number of federal consumer statutes—including the statute of which H.R. 1701

would become a part—expressly exempt from preemption State

laws that are more protective of consumers than related federal
54

4 Id.

5Letter from Ed Mierzwinski, Consumer Program Director, U.S. PIRG, to Members of House

Judiciary Committee, Sept. 5, 2002. 6Letter from ACORN, et. al. to U.S. Representatives, June 12, 2002.

standards. [Citations omitted.] This same approach should be

adopted in connection with H.R. 1701: to set a federal ‘‘floor’’ for

rent-to-own disclosures, but not to bar the States from responding

to local conditions and concerns through the enactment of more

protective standards. In that way, the goal of protecting consumers

can be advanced within a federalist framework.4’’ Likewise, H.R. 1701 is opposed by every national consumer group

and several labor unions, as well as dozens of state and local consumer groups. Its opponents include Consumer Federation of

America, Consumers Union, UAW, United Steelworkers, National

Consumer Law Center, U.S. PIRG, ACORN, National Community

Reinvestment Coalition, and Consumer Action.5 All of these groups

oppose the bill’s preemption of strong State consumer protection

laws that treat rent-to-own transactions as credit sales and, therefore, require the disclosure of the cost of credit and often-exorbitant

100–250% APRs.6

Consumers need more—not less—protection from predatory financial practices. We cannot support a bill that undermines State

pro-consumer laws.

JOHN CONYERS, JR.

BARNEY FRANK.

ROBERT C. SCOTT.

SHEILA JACKSON LEE.

MAXINE WATERS.

WILLIAM D. DELAHUNT.

TAMMY BALDWIN.
(55)

1Wis. State. chs. 421–427.

DISSENTING VIEWS

Regulation of the rent-to-own industry is a ‘‘States rights’’ issue

and should not be preempted by Federal law. Virtually every State,

with the exception of North Carolina, has regulated the rent-to-own

industry for decades, and each State has developed its own expertise and knowledge of this industry through enforcement and internal review. Because there is no national need or comprehensive

policy concern over how the States have regulated this industry, to

do so at this time would usurp State’s authority and undermine the

fundamental principle of federalism. The only effective way to address this conflict would be to grandfather the entire country, except North Carolina. This is unnecessary and unwise, and should

be rejected by every Representative of a State that regulates the

rent-to-own industry.

In Wisconsin, H.R. 1701 undermines the Wisconsin Consumer

Act,1 which has successfully regulated the Wisconsin rent-to-own

industry for 29 years by treating rent-to-own transactions as credit

sales rather than leases. In addition, the established law of Minnesota and New Jersey treat rent-to-own transactions as credit

sales. H.R. 1701 federalizes all rent-to-own transactions as leases

and completely invalidates the existing rent-to-own consumer protection laws of Wisconsin, Minnesota, and New Jersey because they

are based on the premise that rent-to-own transactions are credit

sales. While the Federal Trade Commission staff survey, which is

the purported basis of H.R. 1701, demonstrates that most rent-toown transactions result in a sale rather than a return, there is no

finding in this survey supporting a change in Wisconsin, Minnesota, or New Jersey law. If H.R. 1701 were enacted, it would

completely invalidate long standing and successful regulation of the

rent-to-own industry and require the states to take on the enormous task of re-regulating the rent-to-own industry.

H.R. 1701 is a affront to Wisconsin’s efforts to regulate the rentto-own industry, which has a pugnacious history in Wisconsin politics. The rent-to-own industry has been the subject of repeated enforcement actions in Wisconsin and has sought State legislation to

exempt its transactions from the Wisconsin Consumer Act. This

proposal was recently vetoed by Governor Scott McCallum. Enacting H.R. 1701 would undo Governor McCallum’s veto and fulfill the

goals of the rent-to-own industry. I believe regulation of the rentto-own industry is a state matter and H.R. 1701 is a misguided attempt to preempt the existing law of virtually every State.

F. JAMES SENSENBRENNER, JR.

(57)

SUPPLEMENTAL VIEWS

The Consumer Rental Purchase Agreement Act is special interest

legislation at its very worst. The bill is falsely presented by its industry proponents as pro-consumer and as not pre-emptive of state

law. Neither is true. The bill has one purpose and one purpose

only: to circumvent stronger consumer protections in the Federal

Truth-in-Lending Act and in the statutes of a handful of States

that the rent-to-own industry has not been able to overturn.

As originally introduced, H.R. 1701 sought to preempt all inconsistent State laws. This included all current or future State laws

that attempt to regulate rent-to-own transactions as credit or installment sales, as well as any industry-enacted State rent-to-own

statutes that provide stronger, but inconsistent protections for consumers. Although the amended Committee bill has narrowed the

scope of the bill’s preemption, the bill would still preempt the best

of the State laws in New Jersey, Minnesota, Wisconsin and

Vermont that seek to provide meaningful protections against unfair

predatory practices. And it would still prevent these and other

states from strengthening consumer protections in the future by

treating rent-to-own transactions as credit sales.

What is behind this bill? Not a desire to create a ‘‘Federal floor’’

of consumer protections for rent-to-own customers, as the majority

views allege. It is an effort to avoid hundreds of millions of dollars

in legal penalties imposed by courts in precisely those States whose

laws would be preempted. Since 1997, legal actions responding to

State consumer law violations have produced legal judgements or

settlements against the nation’s largest rent-to-own chain, Rent-A- Center, Inc., amounting to $30 million in Minnesota, $16 million in

Wisconsin and more than $60 million in New Jersey. Unable to win

under these State laws, or to overturn them at the State level, the

rent-to-own industry is simply calling on Congress to preempt

them.

All national consumer organizations oppose H.R. 1701 as an inadequate standard to protect vulnerable consumers from misleading lease arrangements that really mask installment sales at

exorbitant rates of interest. Consumer advocates object to rent-toown operations as enticing vulnerable consumers to acquire electronic equipment, appliances, furniture and other household items

with promises of no credit checks, no qualification and low payments that disguise the true cost of the transaction. Most rent-toown stores encourage consumers to focus only on the affordability

of the low weekly or monthly lease payment and ignore the total

cost of actually acquiring merchandise over the term of the rentalpurchase contract.

Every market comparison done by consumer organizations of the

cost of acquiring comparable merchandise under rent-to-own contracts and alternative credit or installment sales typically show the
58

total rent-to-own cost as averaging three to five times higher than

both the retail price of the merchandise and the comparable credit

price. This imposes an excessive cost burden on low-income families

who have no other means of acquiring basic household items other

than local rent-to-own stores.

Rent-to-own merchants are not the only ones targeting this same

group of vulnerable consumers. Low-income communities are besieged by predatory mortgage companies, payday lenders, check

cashiers, pawnshops and other quasi-financial companies that are

all trying to rob the same families of their meager dollars. The results have been devastating for struggling families and for entire

neighborhoods.

H.R. 1701 does nothing to restrict the exorbitant costs of acquiring merchandise under rent-to-own contracts. Moreover, it fails to

meet the basic standard for full cost disclosure under the Truth-inLending Act by preventing consumers from using annual percentage rate (APR) calculations or other common market measures of

total costs to compare the total cost of rent-to-own transactions

with alternative credit and installment sales options.

The Consumer Rental Purchase Agreement Act should be defeated for several important reasons. It contradicts all arguments

of States’ rights and denies States the opportunity to regulation

commercial transactions as they think best. It promotes and encourages business transactions that target and prey upon our most

vulnerable citizens. And, it seeks to impose an industry-approved

standard of consumer protection in place of long-established principles of Federal and State laws that have proven effective over

four decades.

MAXINE WATERS.

Æ