[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





                       EXAMINING RENTAL PURCHASE
                      AGREEMENTS AND THE POTENTIAL
                      ROLE FOR FEDERAL REGULATION

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 26, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-49








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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

                   Larry C. Lavender, Chief of Staff
       Subcommittee on Financial Institutions and Consumer Credit

             SHELLEY MOORE CAPITO, West Virginia, Chairman

JAMES B. RENACCI, Ohio, Vice         CAROLYN B. MALONEY, New York, 
    Chairman                             Ranking Member
EDWARD R. ROYCE, California          LUIS V. GUTIERREZ, Illinois
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JEB HENSARLING, Texas                RUBEN HINOJOSA, Texas
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
THADDEUS G. McCOTTER, Michigan       JOE BACA, California
KEVIN McCARTHY, California           BRAD MILLER, North Carolina
STEVAN PEARCE, New Mexico            DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             JOHN C. CARNEY, Jr., Delaware
FRANCISCO ``QUICO'' CANSECO, Texas
MICHAEL G. GRIMM, New York
STEPHEN LEE FINCHER, Tennessee











                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 26, 2011................................................     1
Appendix:
    July 26, 2011................................................    41

                               WITNESSES
                         Tuesday, July 26, 2011

Harwood, Charles, Deputy Director, Bureau of Consumer Protection, 
  Federal Trade Commission.......................................     7
Hawkins, Jim, Assistant Professor of Law, University of Houston 
  Law Center.....................................................    20
Saunders, Margot Freeman, Of Counsel, National Consumer Law 
  Center.........................................................    25
Saunders, Vivian, rent-to-own customer from Lewiston Woodville, 
  North Carolina.................................................    23
Soto, Roy Richard, owner, Premier Rental Purchase................    22

                                APPENDIX

Prepared statements:
    Hinojosa, Hon. Ruben.........................................    42
    Westmoreland, Hon. Lynn......................................    44
    Harwood, Charles.............................................    45
    Hawkins, Jim.................................................    57
    Saunders, Margot Freeman.....................................    64
    Saunders, Vivian.............................................    74
    Soto, Roy Richard............................................    78

 
                       EXAMINING RENTAL PURCHASE
                      AGREEMENTS AND THE POTENTIAL
                      ROLE FOR FEDERAL REGULATION

                              ----------                              


                         Tuesday, July 26, 2011

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2128, Rayburn House Office Building, Hon. Shelley Moore 
Capito [chairwoman of the subcommittee] presiding.
    Members present: Representatives Capito, Renacci, Manzullo, 
Jones, Luetkemeyer, Huizenga, Duffy, Canseco, Grimm, Fincher; 
Maloney, Watt, Baca, Miller of North Carolina, Scott, Meeks, 
and Carney.
    Also present: Representative Clay.
    Chairwoman Capito. This hearing will come to order. I would 
like to remind members to observe the 5 minutes provided for 
questions and remain within their allotted time for opening 
statements.
    I know that we have many members on the subcommittee who 
are interested in this issue, and in Mr. Canseco's legislation. 
The best way to assure we accommodate all the members is to 
limit our statements and questions to the allotted time.
    The subject of today's legislative hearing is an 
examination of rental purchase agreements and the potential 
need for Federal regulation of this industry.
    Mr. Canseco has put forth one proposal for Federal 
legislation, H.R. 1588, the Consumer Rental Purchase Agreement 
Act. This legislation defines rent-to-own transactions, 
mandates plain language disclosures, and provides for Federal 
regulation of rental purchase agreements.
    This hearing will provide an opportunity for members of the 
subcommittee to better understand the industry and determine 
the need for Federal regulation. The rent-to-own transaction 
represents just one of many options for consumers when deciding 
whether they are financially able to purchase a large appliance 
or furniture.
    Rather than purchasing a television, refrigerator, 
dishwasher, computer, or other appliance, the consumer enters 
into an agreement where they make weekly or monthly payments 
with the option of purchasing the goods outright.
    Today's hearing will shed light on the need for Federal 
regulation for this industry. The States currently provide a 
varying degree of regulation of rent-to-own transactions. 
Regardless of the outcome of this hearing of potential future 
Federal regulation, we must strive to ensure that consumers 
have access to different options when choosing the best way to 
obtain goods and services.
    Rent-to-own transactions represent just one of many 
options, and I look forward to learning more from our witnesses 
today.
    Mr. Canseco is to be commended for his leadership in 
introducing this legislation, and I would like to thank him for 
his hard work on this issue.
    I would like to now recognize the ranking minority member, 
the gentlelady from New York, Mrs. Maloney, for the purpose of 
making an opening statement.
    Mrs. Maloney. Thank you, Madam Chairwoman, and I welcome 
the witnesses today.
    This issue and this bill has been before this committee in 
previous Congresses, and this year, it is sponsored by my good 
friends and colleagues, Mr. Canseco and Mr. Clay.
    There is no doubt that millions of Americans use rent-to-
own to secure all types of property including televisions, home 
furnishings, computers, and other products for their homes and 
small businesses and offices.
    In Ms. Vivian Saunders' prepared testimony, she wrote that 
rent-to-own allowed her to secure things for her home that she 
would not have been able to purchase outright from a department 
store.
    I don't think anyone questions that these businesses are 
important for our economy, especially in times of economic 
downturn and tightening credit standards, but as with any 
financial transaction, these must be done with an eye towards 
consumer protections.
    We must ensure proper disclosure of prices and terms and 
conditions so that consumers know what kind of deal they are 
getting so they can decide what is best for them.
    I know that the industry would like to see a uniform 
Federal standard, but I also want to make sure that a Federal 
standard doesn't preempt a State's ability to pass and enforce 
their own laws. I have gotten several letters from members of 
the city council and the State legislature of New York already 
staking out a desire to be able to have their own laws to 
protect consumers.
    While I think in this case, a Federal standard could be set 
as a floor, I want to make sure we aren't inadvertently setting 
a ceiling and prohibiting States from enacting their own laws 
or stronger laws.
    Now that we have the Consumer Financial Protection Bureau 
up and running, I understand there is a question as to how much 
jurisdiction the FTC will retain, or whether it is possible 
that the CFPB could inherit some of the responsibilities from 
the FTC.
    So I hope we can explore that, Mr. Harwood, today in your 
testimony. I know that the FTC and the CFPB will be sharing 
jurisdiction over several consumer loans.
    I look forward to hearing your testimony. Thank you for 
coming, and thank you, Madam Chairwoman, for calling the 
hearing.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Manzullo for 1\1/2\ minutes 
for the purpose of making an opening statement.
    Mr. Manzullo. Thank you, Madam Chairwoman, for calling this 
important hearing on the rent-to-own industry. I want to speak 
in support of Mr. Canseco and Mr. Clay's bill, the Consumer 
Rental Purchase Agreement Act. This bill, which has wide 
bipartisan support, simply defines a rent-to-own agreement as a 
short-term lease with a purchase option, not as a sale of goods 
on credit or installment. The bill would create uniform 
national disclosure standards for rent-to-own businesses.
    It also would allow for simple disclosures to provide clear 
cost information to consumers considering rental purchase 
agreements. Those disclosures would be required to be clearly 
included in the rental purchase agreement. And while this 
legislation creates uniform Federal regulations, it still 
leaves intact the rights of States to regulate the industry in 
the ways that they see fit.
    Each year, millions of Americans enter rental purchase 
agreements. Characterizing these agreements as leases is 
consistent with transactional features that distinguish them 
from credit sales. The bill will work to maintain conformity 
with the current Federal treatment of rent-to-own agreements as 
well as existing State rent-to-own statutes.
    Madam Chairwoman, unfortunately, I have to leave the 
hearing at this point. I hope to come back, but I have a 
hearing going on in the manufacturing caucus at the same time, 
so I yield back the balance of my time.
    Thank you.
    Chairwoman Capito. The gentleman yields back. Thank you.
    I would like to recognize Mr. Scott of Georgia for 4 
minutes for the purpose of an opening statement.
    Mr. Scott. Thank you very much, Madam Chairwoman. I 
certainly appreciate you holding this hearing today on rental 
purchase agreements, specifically, the Consumer Rental Purchase 
Agreement Act, of which I am a cosponsor along with a number of 
my colleagues.
    I would like to just take a moment, if we could go through 
the basic points in the bill to make sure that we understand 
how valuable this bill is and how much it is needed at this 
time.
    First of all, H.R. 1588 would define rent-to-own as a lease 
instead of a purchase, and it would protect consumers 
nationwide by mandating minimum disclosures. The situation is 
this now: Currently, 47 States, including my home State of 
Georgia, have now enacted laws redefining rent-to-own.
    So it is, indeed, necessary that Congress act to define it 
as well. It is important to note that the legislation would 
not, and I repeat, would not preclude States from adopting 
stronger consumer protections than are contained in the Federal 
safety net.
    Whichever protection is deemed stronger, that is the one 
that would prevail. Thus, if a State's law were considered to 
be less stringent than a Federal standard in this bill, than 
the Federal law would prevail. However, if the State law were 
deemed stronger, the State law would prevail.
    With this legislation, competition will be advanced, thus 
improving service and payment options for the more than 3.2 
million customers of rent-to-own companies.
    Our bill will provide the rent-to-own industry and its more 
than 50,000 employees with job security, and even allow for 
expansion, thereby creating more jobs.
    Some have argued that the rent-to-own unfairly targets the 
poor and minority communities when, in fact, rent-to-own allows 
customers the ability to rent or purchase goods based upon 
their own personal economic situation.
    Short-term rental agreements have gained in popularity over 
the years based on the quality of the products offered and the 
needs of the consumer and flexibility of the transaction. Rent-
to-own transactions provide millions of customers the option of 
acquiring such items as furniture, electronics and other 
important and needed items in a flexible manner.
    Americans who choose to utilize the rent-to-own services 
may return products at any time and with no penalty. This is 
especially important in our current economic climate when many 
Americans are suffering from lengthy unemployment or job 
insecurity.
    So, I am pleased to offer my support for this legislation 
once again in this Congress. I have supported it before. I urge 
my colleagues to support it as well, and I hope we are able to 
swiftly move this beneficial legislation to the House Floor for 
a vital vote.
    Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Luetkemeyer for 1\1/2\ 
minutes for the purpose of an opening statement.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    I am a proud cosponsor of H.R. 1588, and I want to thank 
the gentleman from Texas and the other gentleman from Missouri 
for their leadership on this issue.
    In Missouri alone, there are approximately 260 rent-to-own 
stores. Collectively, this industry employs more than 1,500 
workers, provides $56 million in annual wages, pays $8.6 
million in annual payroll taxes, and generates $196 million in 
annual revenue just in our State alone.
    Sixty out of 62 rent-to-own companies in Missouri are owned 
and operated by small businessmen and women. These family 
business people need a certainty of a definition of the rental 
purchase transaction as a terminable lease to ensure that they 
can continue to serve their customers and grow their 
businesses.
    Now more than ever, we should be focused on providing 
certainty to small businesses that are able to create jobs. 
H.R. 1588 specifies that these agreements are leases and not 
credit sales. Customers rent products on a weekly or monthly 
basis and are under no obligation to acquire ownership and may 
return the goods without penalty at any time.
    This is important. This bill provides a floor of consumer 
protections to families who rely on rental purchase for access 
to household necessities like refrigerators, air conditioning 
units, and washers and dryers.
    This bill is bipartisan. It is a commonsense solution to 
the uncertainty that rental purchase dealers and their 
customers currently face. I urge my colleagues to join me in 
support of this legislation.
    I thank the witnesses for appearing today, and I yield back 
the balance of my time, Madam Chairwoman.
    Thank you.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Clay for 3 minutes for an 
opening statement.
    Mr. Clay. Thank you, Madam Chairwoman, and good morning. As 
a cosponsor of H.R. 1588, along with my colleague, Mr. Canseco, 
I am especially grateful to you for holding this hearing.
    This bill enjoyed broad bipartisan support during the last 
session, in the subcommittee as well as the full committee, and 
according to the U.S. Census Bureau and the FDIC, millions of 
Americans, particularly lower-income persons, are unbanked or 
underbanked.
    In a recent report, the FDIC notes that many low- to 
moderate-income households do not have access to mainstream 
financial products such as bank accounts and low-cost loans. 
This lack of access to credit falls particularly hard on 
minorities.
    So, it is critical that low-income consumers have access to 
alternative products and services such as rent-to-own. The 
rent-to-own industry offers high-quality household and durable 
goods such as appliances, furniture, electronics, and computers 
for rent on a weekly or monthly basis.
    Rental companies do not check the credit of their customers 
and do not require downpayments or security deposits. This is a 
transaction easy for the consumer to enter and also easy for 
the consumer to exit.
    It gives working-class families opportunities to obtain 
decent household items without incurring the burden of debt, 
while at the same time allowing the consumer to build upon a 
history of credit payments. That is important to establish a 
credit history.
    H.R. 1588 will, for the first time, provide Federal 
consumer protections in the rent-to-own industry. These new 
Federal consumer protections create a strong foundation that 
will afford States ample flexibility to adopt additional 
standards of their own.
    State law will not be preempted. The only Federal 
limitation applies to the definition of the rent-to-own 
transaction. They are lease transactions not sales 
transactions, and States will have the ability to regulate them 
accordingly if they choose to do so.
    For instance, if a State wished to outlaw them completely, 
this legislation would not preclude that. The legislation also 
provides for comprehensive disclosure of key financial terms in 
advertising and on price cards on merchandise displayed in all 
rent-to-own stores.
    And I see that my time has expired, Madam Chairwoman, so I 
will yield back.
    Chairwoman Capito. I thank the gentleman.
    I would like to recognize Mr. Canseco for 2\1/2\ minutes 
for the purpose of an opening statement.
    Mr. Canseco. Thank you, Madam Chairwoman, and I appreciate 
very much your holding this hearing. I am also very grateful to 
my friend and my colleague from St. Louis, Mr. Clay, for 
working with me on this bill.
    For 4 decades, the rent-to-own industry has provided 
consumers with a vital option for obtaining everyday household 
goods such as furniture, electronics, and appliances.
    Rent-to-own transactions are unique in that they give the 
customer the option of either returning a product after a short 
period with no penalty or taking ownership of the product after 
a number of successive payments have been made.
    This makes a rent-to-own transaction especially attractive 
to individuals who have an immediate need for a consumer 
product but don't have available funds necessary to make a 
purchase and don't have the credit to take out a loan.
    The popularity of this industry among consumers has grown 
exponentially throughout the years. Today, there are close to 
8,200 rent-to-own stores in the United States, and the industry 
serves an estimated 6 million customers every year.
    But, unfortunately for the industry and the consumers it 
serves, confusing and conflicting regulations from State to 
State have led to a great degree of uncertainty. That has 
undoubtedly hurt job creation.
    By removing this uncertainty, not only will it lead to new 
jobs, but we could see more stores opening that would help give 
underserved consumers an opportunity they are currently 
missing.
    To help achieve this outcome, Mr. Clay of Missouri and I 
have introduced H.R. 1588, the Consumer Rental Purchase 
Agreement Act, a bipartisan bill that includes 11 cosponsors 
from this subcommittee.
    Our bill would create a Federal definition of rent-to-own 
transactions and provide for a number of consumer protections 
and disclosures to be made at the consummation of a 
transaction.
    H.R. 1588 recognizes that rent-to-own transactions are 
consumer leases, not credit sales, and gives the FTC authority 
to regulate these transactions as such.
    This bill does not change or null State law, yet it does 
create a floor for consumer protection standards, and if a 
certain State has higher consumer protection standards than 
those offered by this bill, that State's laws would prevail.
    These are important protections and help to provide a 
degree of regulatory certainty for the industry and its 
consumers. I look forward to today's testimony, and I thank our 
witnesses who are here to testify.
    Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Fincher for 1\1/2\ minutes 
for the purpose of an opening statement.
    Mr. Fincher. Thank you, Madam Chairwoman.
    I represent the largest number of rent-to-own businesses in 
the State of Tennessee. Of the 290 rent-to-own stores in the 
State that employ a total of 1,740 people, 51 stores are 
located in my district, employing 306 people and serving more 
than 28,000 customers.
    This is an industry of independent small businesses, which 
are part of the economic backbone of our Nation and create the 
most jobs. Just as our community banks are facing burdensome 
regulations because of Dodd-Frank, the rent-to-own industry is 
facing a potentially burdensome regulatory environment from the 
Consumer Financial Protection Bureau.
    Like most industries, rent-to-own businesses depend on 
long-term planning to make decisions such as hiring new 
employees, expanding store locations, and investing in new 
merchandise. That is why I am a cosponsor of the Consumer 
Rental Purchase Agreement Act to bring some regulatory clarity 
and certainty to this industry by more clearly defining the 
rent-to-own transaction and providing meaningful consumer 
protections.
    I look forward to today's testimony and to further 
discussing this bill.
    Madam Chairwoman, I yield back.
    Chairwoman Capito. Thank you.
    I think that all opening statements have concluded, so I 
would like to welcome our first witness for the purpose of 
giving a 5-minute opening statement.
    Mr. Charles Harwood is the Deputy Director of the Bureau of 
Consumer Protection at the Federal Trade Commission.
    Welcome, Mr. Harwood.

   STATEMENT OF CHARLES HARWOOD, DEPUTY DIRECTOR, BUREAU OF 
         CONSUMER PROTECTION, FEDERAL TRADE COMMISSION

    Mr. Harwood. Thank you, and good morning, Chairwoman 
Capito, Ranking Member Maloney, and members of the 
subcommittee.
    I am Charles Harwood, a Deputy Consumer Protection Director 
at the Federal Trade Commission. I would ask that my written 
statement, which was approved by the Federal Trade Commission, 
be included in the record. The following summary of that 
written statement, together with my responses to questions, are 
my views and not necessarily the views of the Commission.
    As part of its mandate to protect consumers, the Federal 
Trade Commission enforces the FTC Act, which broadly prohibits 
unfair or deceptive acts or practices in or affecting commerce.
    The Commission also enforces a number of laws specifically 
governing lending and leasing practices, including the Truth in 
Lending Act and the Consumer Leasing Act.
    These two Acts require disclosures and establish certain 
substantive requirements in connection with consumer credit or 
lease transactions respectively. Under these laws, the 
Commission has jurisdiction over most non-bank lenders.
    The rent-to-own, or RTO, industry consists of dealers that 
rent household goods and other items to consumers, usually on a 
weekly or monthly basis. RTO agreements typically do not 
require any downpayment or credit check, as has already been 
noted, thus providing consumers with immediate access to 
household goods.
    Generally, consumers are under no obligation to continue 
making payments beyond the current weekly or monthly period, 
though if they do, the RTO agreement renews automatically.
    RTO agreements provide consumers with the option to 
purchase the goods in most cases by either continuing to pay 
rent for a specified period of time, or by making early payment 
of some specified proportion of the remaining payments.
    Ten years ago, then-FTC Consumer Protection Director Howard 
Beals testified before this same subcommittee. He described a 
seminal report on the RTO industry prepared by the Commission's 
Bureau of Economics and released in 2000.
    The report, which is described more fully in my written 
testimony, included the following findings: First, based on RTO 
customers identified through a general survey of the 
population, the report found that 70 percent of the merchandise 
rented was ultimately purchased by these customers.
    Second, of these RTO customers, 31 percent were African 
American, and 59 percent had annual household incomes less than 
$25,000. At the time, the average annual median income was 
about $41,000 or $42,000.
    Third, 75 percent of these RTO customers stated they were 
satisfied with their experience, while 19 percent said they 
were dissatisfied, with most citing high prices as the reason.
    Several industry and other studies using industry-supplied 
store reporting data have been published since 2001. These 
studies generally concluded that the purchase rates for RTO 
transactions were lower than the rate found in the FTC Bureau 
of Economics Report. The discrepancies in the purchase rate 
findings may be attributable to differences in the study 
methodologies or other factors.
    Turning to consumer protection issues, there are several 
Federal consumer protection laws that may apply to RTOs 
depending on the circumstances, including the aforementioned 
Truth in Lending Act, the Consumer Leasing Act, and the Federal 
Trade Commission Act.
    None of these laws, however, has provisions that 
specifically reference RTO transactions. However, 47 States and 
the District of Columbia have laws that do specifically govern 
RTO transactions. These laws require a variety of disclosures 
and impose other requirements and prohibitions.
    The bill before the subcommittee, H.R. 1588, which amends 
the Consumer Credit Protection Act to specifically cover RTO 
transactions, includes a provision that would require 
disclosures to consumers of certain payment terms in RTO 
agreements and in advertisements and at the point of rental.
    As noted in my written testimony, the Commission has not 
taken a position on the bill. In general, however, the FTC 
believes that effective disclosures of the key terms of a 
transaction are central to protecting consumers by giving them 
any information they need to make choices, in fact, good 
choices.
    The watchword here is ``effective.'' Designing disclosures 
that successfully convey accurate and useful information can be 
challenging. Often, the success in this regard depends on the 
context, the information that is to be communicated, and the 
specific manner in which the disclosures are made.
    Indeed, the fact that there are different disclosure 
schemes in the various State RTO laws suggests that there may 
be no single right way to make disclosures effectively.
    However, Commission staff would be happy to provide 
technical assistance to the subcommittee in designing effective 
disclosure requirements. That concludes my statement. I would 
be pleased to answer questions.
    [The prepared statement of Mr. Harwood can be found on page 
45 of the appendix.]
    Chairwoman Capito. Thank you, Mr. Harwood.
    I would like to begin by asking--and some folks made 
reference to this in their opening statements--whether or not 
these transactions would fall within the realm of the CFPB, and 
if you view the CFPB as a suitable fit for oversight of the 
rent-to-own transaction.
    Mr. Harwood. Sure. First of all, let me note that that we 
haven't specifically consulted with the CFPB about this 
specific issue, so any answer I give you will be speculative, 
at least in part.
    But I do know that as far as we have heard, the CFPB has no 
intention, so far, of attempting to regulate in this area. As 
you know, under the current regime, the CFPB, which came into 
being on July 21st, has in many ways dual enforcement authority 
with the FTC with regard to many financial service areas.
    And, in addition, the CFPB has the primary regulatory 
authority over many of these areas including rules the FTC 
previously wrote. The CFPB is now responsible for writing those 
rules.
    With respect to whether the CFPB should be involved 
specifically in this, my understanding is that with respect to 
some of that authority, it is somewhat limited and, in fact, 
they might not currently have the authority they would need to 
regulate in this area.
    But beyond that, I really can't comment further who should 
do it. Certainly, the FTC has experience in this area, and 
experience with this industry.
    Chairwoman Capito. Let me ask you a clarifying question 
that might be a little bit off topic there, but you said the 
FTC and the CFPB have dual enforcement authority in certain 
areas. What areas are those?
    Mr. Harwood. As far as the consumer financial services, the 
FTC and the CFPB are both responsible for enforcing laws 
involving mortgage scams, debt settlement schemes, a variety of 
scams in those areas, both agencies can bring law enforcement 
actions.
    Chairwoman Capito. Okay. Consumer advocates argue that the 
rent-to-own merchants should be required to disclose to 
consumers an annual percentage rate of interest on the 
transactions even if the loan is for a shorter time, and the 
rent-to-own area is not the only area that I think has this 
issue.
    Industry reps contend that such disclosures could be 
misleading. We have already learned that a lot of the contracts 
are a week, a month--a short period of time. What was the 
average? Four months or something of that nature. Do you have a 
view on whether that would be considered full disclosure if you 
put the annual percentage rate of interest?
    Mr. Harwood. In its testimony, the FTC takes no position on 
whether APR is the right way to make these disclosures versus 
some other means. I would note, though, that these transactions 
are a bit unique and that they are hybrid transactions.
    They have some elements of a rental and some elements of 
the purchase arrangement, possibly making it difficult to know 
what kind of scheme should actually be applied.
    In the report that the FTC did in 2000, we did note that it 
would be important to consumers to have the total purchase 
price disclosed to them.
    But we also noted that it might be problematic to try to 
apply an APR rate depending on a variety of issues. For 
example, to apply APR, you have to begin by determining what 
the cost of the item was, and at least in some instances, we 
were concerned that: first, it would be difficult to determine 
the cost of the item; and second, the APR itself could be 
skewed based on what the merchant chose to set the cost at if 
you left it to the merchant to set the cost of the item.
    So, in fact, in some instances, we were concerned the APR 
might not communicate adequate information.
    Chairwoman Capito. The last question from me is that 47 
States have disclosure laws and other laws over rent-to-own, 
and you do consumer protection in the FTC. This is probably in 
your report, so pardon me if I didn't catch it when I read the 
report, but what are the top two abuses by the rent-to-own 
businesses of consumers, in your opinion?
    Mr. Harwood. Let me first note that the FTC receives a 
small number of complaints about the rent-to-own industry. I 
believe it was only a couple of hundred over the past year out 
of over 1.1 million complaints total that the FTC received.
    So the information I am relying on is a very small part of 
the complaints, but the kinds of complaints we received 
involved problems, for example, with returning merchandise; 
problems with broken items that weren't being serviced 
adequately. I am not sure those are the top two, but those are 
two examples in looking at the few complaints we did receive.
    Chairwoman Capito. I think it is interesting that there 
were so few complaints, and that basically, probably if you 
went industry-wide on any industry that rents or sells 
anything, we will probably have those same types of 
complaints--not working correctly, or those kinds of things.
    I thank you very much.
    And I would like to go to the ranking member for her 
questions.
    Mrs. Maloney. Thank you, and thank you for your testimony.
    In your testimony, you state that the FTC does not support 
preemption of State laws that are more protective of consumers 
in this area, and that States should continue to be the 
laboratories of democracy.
    So, can I take from that comment that you do not believe 
the Federal Government--either Congress or the FTC--should be 
regulating the rent-to-own industry?
    Mr. Harwood. Thank you, Representative Maloney. I think you 
are referring to the footnote at the end of the testimony. That 
footnote reflects the views of two of our five Commission 
members--Commissioner Brill and Chairman Leibowitz--who felt it 
was important to convey the views in the footnote. The other 
three members of the Commission took no position on the issue 
of preemption.
    Let me note, though, that with regard to preemption, there 
are a variety of factors that go into any consideration about 
whether you should preempt State laws with Federal law. Those 
factors include whether two regulatory regimes can coexist--a 
Federal and a State regulatory regime. They also include 
whether there is currently an effective State law enforcement 
initiative or program in place. They also include how 
burdensome two regulatory regimes would be on business. And 
also, whether there are effective Federal law enforcement 
alternatives if the States are preempted.
    These are just some of the factors that, taken together, 
tend to guide policymakers in deciding whether you should 
preempt State law with Federal law.
    As I said, two of the Commissioners expressed concern about 
this preemption. The other three Commissioners took no specific 
position on it.
    Mrs. Maloney. What is the role of the FTC now in regulating 
them, and what do you view as the FTC's role?
    Mr. Harwood. We receive over 1.1 million complaints, 
including several hundred on the rent-to-own industry. That is 
only about three-one hundredths of 1 percent of all the 
complaints we received last year.
    Nevertheless, if we were to see complaints that suggested 
that there was a pattern of deception by a member of this 
industry, significant problems with deceptive debt collection 
practices, or other kinds of consumer abuses, the FTC believes 
it has the authority under the FTC Act to file lawsuits against 
the companies engaged in such deceptive or unlawful practices.
    Mrs. Maloney. Have you filed any lawsuits for deceptive--
    Mr. Harwood. Not against the rent-to-own industry, no.
    Mrs. Maloney. Not in what, 1 year or 2 years or ever?
    Mr. Harwood. As far as I know, not in the last 10 years, 
which is as far back as I looked.
    Mrs. Maloney. With an overwhelming number of States already 
enacting laws on rent-to-own transactions, and the fact that 
the industry--of course, it is a factor of the economy, 
possibly--has continued to grow, despite having to contend with 
requirements that are different across State lines, is there a 
compelling need for Federal legislation over rent-to-own 
transactions?
    Mr. Harwood. As I indicated, I think that requires 
assessing a variety of factors, for some of which you might 
need to develop a more extensive record, and I think part of 
that record can be obtained by talking to the industry and by 
talking with consumers.
    Certainly, we haven't seen a significant number of 
complaints about this industry filed with the FTC. On the other 
hand, I also can't assess how much burden two regulatory 
schemes or the separate State schemes have posed on the 
industry.
    Mrs. Maloney. But you already have the power right now, and 
for 10 years, you haven't acted on any of the complaints?
    Mr. Harwood. Those are both correct statements, yes.
    Mrs. Maloney. Pardon me?
    Mr. Harwood. Yes, that is correct. And as I had indicated, 
two members of our Commission felt strongly that there was no 
need to preempt. The other three didn't take a position on it.
    Mrs. Maloney. Do you call the States and ask them to do 
something, or do you just ignore it?
    Mr. Harwood. We are aware of State law enforcement actions. 
For example, Washington State filed a law enforcement action in 
2009 involving the rent-to-own industry.
    So we talk with the States about their law enforcement, and 
we track their law enforcement efforts.
    Mrs. Maloney. And how does a rent-to-own customer 
accurately compare the prices of rent-to-own merchandise to 
products available at the traditional retail stores now?
    One of the things we have been working on is fairness, 
access, transparency, consumers getting the best price because 
they have fewer dollars--they are struggling, entrepreneurs 
especially, small businesses are struggling, access to credit 
is difficult.
    In the current framework, is there a way to compare prices 
so that our entrepreneurs can get the best price as they 
struggle with their businesses?
    Mr. Harwood. We share your concern for consumers who are 
facing financial problems. The FTC has devoted significant 
resources to combating scams and frauds that target consumers 
who are facing financial difficulty--we call these frauds last 
dollar frauds.
    We have also been engaged in a variety of law enforcement 
efforts to protect small businesses, many of whom are also 
targeted by scams and fraudulent activities.
    With regard to comparing prices, this is exactly the sort 
of thing that our study looked at in 2000. We wanted to make 
sure consumers can adequately compare the total purchase cost 
of something they may choose to purchase through a rental 
transaction with the total purchase cost of something they may 
choose to purchase from a retailer. This is why we argue it is 
important to have the total purchase cost disclosed to 
consumers at the time they enter into a rental purchase 
arrangement.
    Chairwoman Capito. The gentlelady's time has expired.
    Mr. Renacci for 5 minutes?
    Mr. Renacci. Thank you, Madam Chairwoman.
    I am still confused. I am going to follow up on the ranking 
member's question. I am a big advocate of rent-to-own, and I 
think it is a great industry. I think it helps those who 
sometimes cannot afford to purchase.
    But I keep hearing you say that you haven't had that many 
complaints, and I am trying to determine your opinion--and I 
don't think you answered it--in your opinion, do you believe 
there is a compelling reason to have a Federal rent-to-own 
standard?
    Mr. Harwood. As I have indicated, there are very few 
complaints, and for the Commission and for the Commission 
staff, including me, it comes down to, where do we put our 
limited resources?
    In the past 5 or 6 years, the Commission has filed numerous 
cases involving loan scams, involving debt relief scams, 
involving credit debt collection scams. Those were areas where 
we believed it was important to put our resources, because of 
the literally thousands of complaints we receive concerning 
those areas.
    We simply don't have the resources to deal with every 
single consumer complaint we receive, as much as we might like 
to. So it really comes down, Representative Renacci, to how we 
use our limited resources.
    Mr. Renacci. It also appears if there were a large number 
of complaints, and you were starting to see a trend, that this 
would be something that would go up on the radar screen and not 
be down on the lower part of the radar screen.
    Mr. Harwood. That is correct. If we were to see a pattern 
of fraud or deception or consumer injury with regard to the 
conduct of rent-to-own industry members, we would likely choose 
to focus more of our resources on the industry.
    Mr. Renacci. Has anybody ever done a comparison of State-
by-State disclosures, what the States are requiring and how 
similar they are, and how similar the State disclosures are to 
what this bill is actually going to require as disclosures to 
determine whether the States are already asking for adequate 
disclosures?
    Mr. Harwood. My understanding is that most of the State 
laws have some similar provisions, but they are not identical 
by any means. They all mandate some cost disclosures; they 
prohibit some unreasonable fees; they prohibit imposition of 
mandatory property loss insurance--a requirement that was more 
common in the past; and they give customers who miss payments, 
in most cases, the right to restate their rental under certain 
circumstances.
    But beyond that, there are quite a few differences 
including differences as to what they require to be disclosed.
    Mr. Renacci. But do you think they meet the minimum 
disclosures based on your review?
    Mr. Harwood. Again, the disclosures vary widely. I think 
some States come relatively close to meeting the total cost 
disclosure--the kind of disclosure that the FTC said would be 
helpful. In other cases, I suspect, the disclosures are not as 
helpful as they could be.
    Mr. Renacci. It is interesting, the IRS and basically they 
have a standard for lease versus purchase, and I wonder if the 
total disclosures would justify--there are four standards. If 
you are leasing something for 75 percent of the useful life, if 
there is a transfer of ownership, if there is an option to 
purchase at bargain price, and if there is a present value of 
the lease payments exceeds 90 percent--that is what I am used 
to, because I am from--being a CPA--a standard of whether you 
are leasing or purchasing.
    I wonder if those disclosures, if significant enough, 
wouldn't actually transfer some of these into consideration of 
being a purchase versus a lease. If the lease payment is--I 
will give you an example: If you buy a refrigerator, and it is 
a $1,000 refrigerator, and you are paying $100 a month for 15 
months, you are literally paying $1,500 for a $1,000 
refrigerator, and I am using extreme--that becomes, in many 
cases, by an IRS standard, a purchase in the business world 
versus the consumer world.
    I am just trying to get a feel for where the Federal 
Government would step in on those kind of transactions and 
determine whether it really was a lease or a purchase.
    Mr. Harwood. I think the Federal Government currently would 
not step in. In the consumer protection arena, not in the IRS 
arena, but in the consumer protection arena, the Federal 
Government would not step in and determine whether it is a 
lease or a purchase.
    In my opinion, interpretation would rely on the language in 
the contract or in the rental agreement that presumably would 
specify what kind of a transaction the consumer entered into. 
For example, does the consumer have the right to return the 
product? How is the consumer paying for it? Who retains 
ownership of the product during the time that it is being 
leased or purchased? Those sorts of considerations.
    Mr. Renacci. Okay. I yield back.
    Chairwoman Capito. Thank you. The gentleman yields back.
    Mr. Watt, for 5 minutes for questions?
    Mr. Watt. Thank you, Madam Chairwoman, and I thank the 
Chair for convening the hearing. I think it is important for us 
to understand this bill.
    Let me say at the outset, I am neither an advocate for nor 
an adversary of the rent-to-own business industry. I do have 
pretty strong feelings sometimes to the right of my Tea Party 
colleagues about what is appropriately under Federal 
jurisdiction and what is appropriately under State 
jurisdiction, and it has always been that concern that I have 
expressed about this bill in its prior forms and which I 
continue to have concerns about in its current form, because it 
seems to me that the exception in section 1018 of this proposed 
bill, to the preemption, eats up the rule.
    So let me ask you, Mr. Harwood, did your study that you 
referred to determine what percent of rent-to-own transactions 
were in interstate commerce--that is, I am a customer, and I go 
into another State and enter into an agreement, as opposed to 
what percent of the transactions were in intrastate commerce?
    Mr. Harwood. Actually, the study did not look at that 
specific issue. I suspect--
    Mr. Watt. Okay.
    Mr. Harwood. --most of the transactions are actually local 
between the consumer and the rental shop owner.
    Mr. Watt. Okay. I thought that might be the case. This 
strikes me as pretty much the same debate I have in this 
committee and in the Judiciary Committee with my colleagues who 
feel like we ought to have a Federal standard for medical 
negligence.
    I have never seen an operation or a medical procedure take 
place across a State line. It generally takes place inside a 
particular State, and my experience with rent-to-own 
transactions is that is also the case.
    I am not sure how some of my colleagues who say that they 
want to downsize the role of the Federal Government--how they 
reconcile that with giving the Federal Government more and more 
and more jurisdiction over more and more and more things.
    But I will let them--I won't ask you that question, Mr. 
Harwood, I am sure you couldn't reconcile that. I haven't been 
able to get them to reconcile it in the 19 or 20 years I have 
been here in Congress.
    Have you looked closely, Mr. Harwood, at the exception to 
what is preempted under section 1018(b) of the proposed 
legislation? Did you have a chance to look at that, or should I 
just wait and ask the second panel? I am sure there are people 
on the second panel who looked pretty closely at that 
definition?
    Mr. Harwood. I have it front of me now, though I don't 
claim any particular expertise with regard to what the language 
means.
    Mr. Watt. So if I am a customer, and I walk into a rent-to-
own store in North Carolina--I am in North Carolina--I walk 
into a North Carolina store, do you think it would be 
reasonable for the Federal law to tell me how to regulate--
whether to regulate this as a rental purchase agreement, as a 
security interest, a credit sale, a retail installment sale, a 
conditional sale, or other form of consumer credit?
    Why should the Federal Government be telling me what form 
of consumer credit this is if this whole transaction is within 
the State?
    Mr. Harwood. I am not sure I can really answer that 
question. I will note that there are Federal laws that 
currently apply to things like credit disclosures and lease 
disclosures even at the level of consumer to business 
transaction. So, it is not an unprecedented concept.
    Whether that should be extended to this kind of thing is 
harder for me to answer.
    Mr. Watt. I yield back, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    Mr. Watt. I think I have made the point I want to make.
    Chairwoman Capito. I would like to recognize Mr. 
Luetkemeyer for 5 minutes for questions.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Mr. Harwood? Just from the testimony this morning and 
reading some of the information with regards to this industry, 
it would appear that--and having been around the financial 
services industry for many years and looking at their 
complaints to transaction ratio, this would be an outstanding 
complaint-to-transaction ratio when you received 200 complaints 
for 1.2 million transactions.
    That is phenomenal. It would tell me that, I guess, the 
industry has been around for so many years that they have 
worked out the problems. The States have been regulating it to 
the point where they have the industry to a point where it 
provides the service in a way that consumers can operate with 
it in a fair fashion, get good service, get good product for 
the dollar, good value for the dollar, and the bad players are 
apparently out of the industry. Would that be a fair statement?
    Mr. Harwood. I hope that is accurate, Representative.
    Mr. Luetkemeyer. It would seem with 200 complaints out of 
1.2 million transactions, that would be a pretty good 
assumption from the standpoint of looking at other industries 
that are not necessarily similar to it, but in the financial 
services industry, anyway, this would be a phenomenal ratio.
    Mr. Harwood. It may also reflect that complaints are 
primarily going to the States, which have more enforcement in 
this area, but probably a little of each, to be honest.
    Mr. Luetkemeyer. Okay. Very good. Fair enough. Would you 
characterize this bill as--because of that then, the industry 
would appear to be pretty satisfied with what is going on 
within its industry with the State regulation. Would you 
characterize this bill as a preemptive move to protect the 
industry from Federal oversight and regulation?
    Mr. Harwood. I wouldn't try to characterize it, to be 
honest. My understanding is that it tracks many of the current 
State laws. Most of the State laws that currently exist, it is 
similar to them. So whether that constitutes an effort to take 
over the area, I really couldn't say.
    Mr. Luetkemeyer. I would think that if you look at the 
regulatory scene today--and when I talk to consumers, the first 
question is always about jobs, the economy, and the debt and 
everything that is going on, and the second question is always 
about the regulatory environment.
    So it would seem to me that they are concerned with the 
sticky fingers of government trying to get in their industry 
and trying to regulate in perhaps a negative way. And this may 
be a preemptive way of being able to get themselves into a 
position to protect your industry as well as improve it from a 
standpoint of Federal regulation. Would that be a fair 
statement?
    Mr. Harwood. My understanding is that the legislation is 
intended to accomplish the goal of protecting consumers by 
providing adequate disclosures and providing them on a national 
basis.
    Mr. Luetkemeyer. Okay. In previous testimony, you have made 
the statement with regard to the annual percentage rate, that 
it does not necessarily fit in this rent-to-own transaction 
since consumers can stop the transaction at any time.
    And in my discussion with some of my rent-to-own business 
folks, they indicated that--at least one of them did, and it is 
probably--I assume it is probably industry-wide--maybe off a 
little bit, but that the average product is returned 3 times 
before it is actually purchased.
    So, I think they make a very good case that it is not 
something that is a true ownership type of scenario where I am 
going to purchase it over time--a time sensitive contract of 
some sort. Whenever you have that kind of return on those 
products, it would certainly not lend itself to an APR 
transaction. Do you still agree with that?
    Mr. Harwood. I don't have the data you have about the 
average product being returned 3 times, but when you have used 
and new products, and you are renting them both, that does 
raise questions about how you set the purchase price of the 
product, which is part of what has to go into calculating APR, 
and demonstrates why it may be challenging to determine and 
compare APRs in this area.
    Mr. Luetkemeyer. What is the average length of the 
transactions? Do you know offhand?
    Mr. Harwood. I am afraid I don't know that.
    Mr. Luetkemeyer. Okay. If you were looking at this piece of 
legislation, what do you see in it that would raise concerns 
for you?
    Mr. Harwood. As I had indicated, for the FTC, a main 
concern for us is how you go about disclosing, in a meaningful 
way, the information you want consumers to have.
    You need the disclosure to be effective. You need to make 
sure they are getting all the information they need.
    Mr. Luetkemeyer. Are they not getting it now?
    Mr. Harwood. The legislation leaves open how disclosures 
are to be done. I think it gives the Federal Reserve Board the 
authority to promulgate regulations for disclosures.
    Our concern would be that disclosures need to be effective 
and meaningful to consumers.
    Mr. Luetkemeyer. The States have--are they pretty well in 
line with a lot of disclosure requirements?
    Mr. Harwood. I think some of the disclosure requirements 
that are included in the legislation are currently being made 
in the States. I think in some instances States have different 
disclosure requirements. Some are more extensive, some are less 
extensive.
    Mr. Luetkemeyer. Okay, I see my time is up. Thank you, 
Madam Chairwoman.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Clay for 5 minutes for 
questions.
    Mr. Clay. Thank you, Madam Chairwoman.
    Mr. Harwood, the FTC's most recent rent-to-own survey is 
more than a decade old, and we have experienced significant 
turmoil in the financial industry during the last few years. Do 
you think a more recent examination into the experiences of 
rent-to-own customers, and wider rent-to-own industry is 
warranted before Federal regulation or rent-to-own transactions 
should be considered?
    Mr. Harwood. Representative, I actually asked our 
economists who worked on the 2000 study what their view was of 
it, and they tell me they stand by the results of the 2000 
study, and continue to believe it is--the findings are valid 
and useful findings.
    I should note that the economic disruptions that you are 
describing and problems you are describing are exactly the same 
economic disruptions that the FTC has been focusing on. Those 
kinds of issues have caused us to feel like we need to focus 
our resources on those issues rather than conducting additional 
studies in areas such as rent-to-own.
    I will note that, third, when we did this study in 2000, it 
was done at a time when there was a great deal of concern, not 
just about the disclosure regime associated with rent-to-own, 
but also there were complaints about debt collection issues and 
other issues associated with the rent-to-own industry.
    The study found those problems did not seem to be as 
substantial or as widespread as was thought at the time. We did 
the study suggesting that at least in that area, there was 
little that needed to be further studied.
    Mr. Clay. Thank you for that response. If there is well-
settled law regarding rent-to-own transactions in most, if not 
all, States, is there a need to expand any consumer protections 
to rent-to-own transactions or should the States continue to 
decide how to treat these transactions?
    Mr. Harwood. The complaints and the law enforcement actions 
I am aware of have all involved State actions. The ones I have 
looked at recently involved a variety of deceptive and abusive 
practices in the rent-to-own industry, and from what I can 
tell, the States effectively and aggressively took care of the 
problems.
    Mr. Clay. Thank you for that response. In accordance with 
FTC recommendations, we have provided additional protection for 
consumers through H.R. 1588, and that will include a new price 
tag requirement, new tag information must disclose whether an 
item is new or used, the case price for the item, the amount of 
each rental payment, the total number of payments required to 
obtain the property, and the full rental purchase price.
    Do you think these new additions are sufficient to satisfy 
FTC recommendations?
    Mr. Harwood. The kinds of disclosures that are required in 
1588 are the kind that the FTC urged be considered in our 2000 
report in this area. All of those disclosures go to helping 
consumers understand the components of what they are 
purchasing--the price components of what they are purchasing.
    They make the pricing information more transparent and 
easier for the consumers to understand. Whether those are all 
of the provisions--all of the things you would want to see 
disclosed or whether there might be additional disclosures that 
would be helpful, it is hard for me to get into specifics, but 
all of those things are important to consumers.
    Mr. Clay. Thank you so much for your response.
    And, Madam Chairwoman, I yield back the balance of my time.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Canseco for 5 minutes for 
questions.
    Mr. Canseco. Thank you, Madam Chairwoman.
    Mr. Harwood? In order to follow up on what Mr. Clay was 
asking with regard to the 2001 hearing that was held, shortly 
thereafter, a year after, a bill similar to H.R. 1588 was 
passed in the House.
    A focus of that hearing was the 2000 FTC survey of the 
industry you described. Has the view or perception of the FTC 
towards the industry materially changed since then?
    Mr. Harwood. Recognizing that we have different 
Commissioners now than the Commissioners at the time of the 
2001 hearing and different senior management, there hasn't been 
any significant change in the way the FTC has perceived the 
industry.
    We haven't been involved in law enforcement actions 
concerning the industry since then.
    Mr. Canseco. So would your answer be--
    Mr. Harwood. I think the answer would be the views are 
relatively similar, if not identical, to the--
    Mr. Canseco. Okay, thank you. How well do the protections 
of H.R. 1588 address some of the FTC's concerns over consumer 
protection, in your opinion?
    Mr. Harwood. As I had indicated, the disclosures that are 
required under H.R. 1588 are of the kind that we urged 
consumers should receive in our 2000 study. They help make the 
pricing more transparent for consumers. They help them 
understand the total purchase price of these items, and it 
allows them to compare the purchase price through the rental 
process or leasing process with just buying an item off the 
store shelf.
    We believe those things are helpful to consumers. Whether 
all of the disclosures are necessary or whether there might be 
additional disclosures, we haven't analyzed the bill that 
closely.
    Mr. Canseco. And does the FTC view the bill as providing a 
floor for consumer protections in relation to State laws?
    Mr. Harwood. My understanding is that it varies depending 
on which part of the bill we are talking about.
    In many parts of the bill, as I understand it, for example 
under section 1018(a) it makes clear that the bill allows 
consistent laws and even laws that provide greater consumer 
protection to coexist. Under 1018(b), there is a provision that 
preempts laws that require APR disclosure.
    So the answer is yes, in some ways it does--
    Mr. Canseco. Okay. So in your opinion, the bill could 
enhance consumer protection in a number of States whose laws 
regarding rent-to-own could be viewed as inadequate?
    Mr. Harwood. Yes, and I am confident there are undoubtedly 
States in which it would provide greater consumer protections 
then currently exist.
    Mr. Canseco. And thus serve as an example to those States 
that have inadequate laws in order to rectify those 
inadequacies?
    Mr. Harwood. I would think that the bill gives the FTC and 
the States the authority to enforce this law if it is enacted. 
So in those States, the State consumer protection authority 
would also have the authority to enforce this law.
    Mr. Canseco. Right. To follow up on Mrs. Maloney's 
inference to that, the FTC has chosen not to act. H.R. 1588 
gives them specific authority to pursue penalties.
    If a merchant is found to be in continual violation of the 
provisions of Title X, the Federal Trade Commission or a 
relevant State Attorney General can issue an order to cease and 
desist or pursue a civil penalty. Is that correct?
    Mr. Harwood. Yes, that is correct. That is my understanding 
of the legislation as well.
    Mr. Canseco. Okay. Thank you--just to clarify that. And you 
mentioned, at the end of your testimony, that the rent-to-own 
market would only function properly if its business practices 
are transparent, fair and honest. Does the FTC believe that 
H.R. 1588 goes a long way towards meeting these criteria?
    Mr. Harwood. The FTC believes that the goals of 1588, in 
fact, would help consumers better understand the purchase 
transactions and would provide the kind of transparency we are 
urging.
    Mr. Canseco. And in your testimony, you say that the FTC is 
not aware of a determination by the CFPB regarding their 
authority over rent-to-own transactions, but in your opinion, 
does the Dodd-Frank statute even give the CFPB authority over 
the rent-to-own business?
    Mr. Harwood. I am told that at least one provision in Dodd-
Frank raises questions as to whether the CFPB would have 
jurisdiction. But my expertise concerning Dodd-Frank is 
somewhat limited.
    Mr. Canseco. Thank you for your candor.
    The rent-to-own industry predates the Truth in Lending Act 
and the Consumer Leasing Act. Are you of the belief that the 
industry's omission from those Acts was intentional?
    Mr. Harwood. I honestly don't know the answer to that, 
Representative Canseco. I presume the Congress knew the 
industries were out there at the time they passed that 
legislation, but beyond that, I can't say.
    Mr. Canseco. Okay. My time has expired. I thank you, very 
much, for your candor.
    Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you, Mr. Canseco.
    And with no further questioners, I dismiss the first panel 
and thank Mr. Harwood for his answering the questions and his 
conciseness in answering them too. I appreciate that.
    I will now call up the second panel.
    Thank you. At this time, I would like to call up our second 
panel of witnesses. Thank you all for coming. I will introduce 
them individually.
    Mr. Canseco will be introducing Mr. Soto after we hear from 
Mr. Hawkins, if that is alright.
    And our first witness is Mr. Jim Hawkins who is assistant 
professor of law at the University of Houston Law Center.
    Welcome, Mr. Hawkins.

     STATEMENT OF JIM HAWKINS, ASSISTANT PROFESSOR OF LAW, 
                UNIVERSITY OF HOUSTON LAW CENTER

    Mr. Hawkins. Thank you so much for inviting me to testify 
on this important bill.
    I want to be clear from the start that my statements are 
only my own. I am not here on behalf of any consumer groups or 
industry groups or my employer, and I would ask that you would 
include my written statement in the record.
    Chairwoman Capito. Without objection, it is so ordered.
    Mr. Hawkins. I want to make two quick points today. First, 
I want to talk about how this bill will protect consumers in 
many different States in important ways. And second, I want to 
talk about its relationship to State law.
    First, I think this bill has the potential to provide a 
baseline of important consumer protection provisions for 
consumers in many States that have laws that are less strict. 
And I want to talk about two important ways that it protects 
consumers.
    The first is by requiring that the disclosures of important 
terms are segregated at the start of the contract as opposed to 
being later in the contract or not all in one place. The reason 
this is important is because we all know that people don't 
always read their full contracts.
    So, it is important that we get the essential terms upfront 
where it is most recognizable for people. And if you look at 
the State rent-to-own laws, I haven't found a single State that 
has this requirement that fees and information be segregated at 
the start of the agreement.
    I am not saying there are no States with this requirement, 
but I haven't seen them yet. And so, I think this is a real way 
that the Federal bill under discussion could add consumer 
protections.
    More importantly, however, is the second item I wanted to 
mention, and that is the reinstatement rights that this bill 
gives consumers. The thing that I think is very concerning 
about rent-to-own is that you could have a customer pay week 
after week and then, after paying for 70 weeks on a 78-week 
contract, run into car trouble, not be able to pay their rental 
payment, and lose the good and not be able to purchase it after 
all.
    This bill provides protection for all consumers to allow 
them to reinstate and, depending on how long they have paid 
into the contract, gives them different lengths of period. So 
the people I am most concerned about are people who have paid 
in for more than 50 percent of the rental payments.
    For those people, if you have returned the goods and paid 
half the contract, you have 120 days to reinstate the agreement 
if you have to return the goods. And again, I haven't seen 
other States with this protective of laws.
    Some States, like Massachusetts, don't have any 
reinstatement rights whatsoever. So in Massachusetts, you could 
literally pay for 77 weeks and miss one payment and not be able 
to obtain that good you have invested in. And so, I think this 
law for these provisions and other reasons can help consumers.
    I wanted to talk briefly about its relationship to State 
laws. Like other Federal consumer protection laws, this bill 
really does provide just the base, so if States think that 
there should be greater restrictions on rent-to-own, they are 
free to introduce those.
    The only two things that they are not allowed to do under 
the Act are to treat rent-to-own transactions as credit and to 
require APR disclosures. For me, neither of these really 
protects consumers in States, in my view.
    I think it is a poor regulatory strategy to try to 
pigeonhole this product into existing credit laws, because it 
is different. I can't think of another credit product that you 
can walk away from as soon as you don't want to pay any more on 
it. And, yet, that is what rent-to-own allows you to do.
    The other consumer protection provision of APRs also 
provides minimal protection to consumers. And I want to 
clarify--my written statement said that Vermont, by statute, 
requires APR, and it is actually just by rule from the attorney 
general. So, I apologize for the inaccuracy.
    But I don't think that this is an important disclosure for 
people to have. The most important reason for my conclusion is 
that it is inaccurate for almost everyone. As the FTC survey 
said, 30 percent of the people who use rent-to-own don't 
actually purchase the agreement. So, an implied APR has no 
meaning to those people.
    And to create the implied APR, you would have to compare 
the total cost of renting versus the cash price. But almost no 
one acquiring ownership through rent-to-own makes the total 
payments. The FTC survey found that 47 percent of people 
purchase their good within a year.
    So, they didn't pay the total payments. They, sometime 
within that year, paid a discounted amount off of the total 
price. People in the industry say that only 2 percent of people 
make the total payments. So for everyone except those 2 
percent, APR is misleading.
    I thank you and look forward to your questions.
    [The prepared statement of Professor Hawkins can be found 
on page 57 of the appendix.]
    Chairwoman Capito. Thank you.
    Mr. Canseco?
    Mr. Canseco. Thank you, Madam Chairwoman. I would like to 
welcome to the hearing today, Mr. Roy Soto from San Antonio. 
While working for a large rent-to-own chain, Mr. Soto and his 
two business partners, 10 years ago decided to take a risk and 
open their own store, Premier Rental Purchases in San Antonio, 
Texas.
    Today, their business has expanded to 5 stores, and they 
employ 40 people while providing a valuable option to residents 
of San Antonio, Texas. His is a true success story, and I am 
very pleased he is here to testify today.
    Thank you, Mr. Soto, for being here.
    Chairwoman Capito. Thank you.
    Mr. Soto is recognized for 5 minutes.

 STATEMENT OF ROY RICHARD SOTO, OWNER, PREMIER RENTAL PURCHASE

    Mr. Soto. Madam Chairwoman and members of the subcommittee, 
thank you for inviting me to testify today in support of H.R. 
1588. My name is Roy Richard Soto.
    I would ask that the Chair put my written statement in its 
entirety in the record.
    Our company operates five rental stores in San Antonio, 
Texas. I have two equal partners, Trinidad Rubio and Brian 
Clussman. Our business name is Premier Rental Purchase.
    My partners and I have been in the rental business for 20 
years. Early on, we knew that we wanted to own and run our own 
stores. We each had a vision for our own company, in a business 
culture, we could create drawing from all of our experience and 
knowledge of the business.
    In 2001, we came up with a business plan for our own rent-
to-own business. Over the course of the next 4 years, we showed 
the business plan to 12 different banks, explaining our vision 
and how the rent-to-own business works. All 12 listened 
politely and then turned our loan application down flat. We 
were finally able to get an SBA loan as a franchise in the 
Premier organization, and we opened our first store.
    Today, our four Premier stores in San Antonio, as was 
previously mentioned, employ 40 employees with an annual 
payroll of $1.2 million. At Premier, we rent high-end quality 
TVs, computers, furniture and appliances--the convenience of 
modern 21st Century life--to consumers on a weekly, bi-weekly, 
semi-monthly, and monthly basis.
    The customer chooses the product he or she wants--perhaps a 
washer and dryer to avoid carting children and laundry to the 
aundromat every Saturday. A customer is never obligated to make 
the next payment. The customer never goes into debt.
    Ours is a no-obligation rental transaction. If the customer 
completes the full term of the agreement or exercises an early 
purchase option, ownership transfers along with any unexpired 
manufacturer's warranty.
    We also provide free delivery and installation of our 
products, a 90-day same-as-cash option, and full service 
including repair or replacement of the product during the 
entire rental term. We provide the use of a loaner item if we 
have to pick up the item and bring it back to the store for 
repairs.
    Our company also offers lifetime reinstatement. That means 
that if some unexpected financial emergency arises, customers 
can simply return the unit to us. If their situation changes in 
a week, 6 weeks, a year, or 6 years, they can come back into 
the store and pick up the agreement right where it left off.
    We will redeliver the same unit if we still have it, or we 
will deliver a unit with comparable quality and condition. 
Rent-to-own is an attractive choice for a wide variety of 
consumers, because the customer never goes into debt with us, 
and we do not run a credit check on our customers before we 
rent to them.
    If a customer tells us the truth about who they are and 
where they live and where they work, we are happy to do 
business with them without ever having to delve into their 
financial history. Furthermore, we do not report our customers 
to credit reporting agencies.
    Rent-to-own is attractive to young people who are new to 
the marketplace and may not have established a credit history. 
The transaction is attractive to many Americans who have 
blemished credit. Rent-to-own is also attractive to those who 
want to try it before they buy it.
    And, lastly, rent-to-own is attractive to many of our 
military service folks, because they often are in transition 
with their residence, and we often are able to serve them.
    We call it rent-to-own or rental purchase even though in 
our company, the percentage of customers who complete their 
chosen rental term or exercise the early purchase option 
averages about 35 percent. Our customers often do not purchase 
the goods that they are renting because their plans change, 
their tastes change, their needs change, financial emergencies 
arise, or people move.
    And because there is no obligation ever to make that next 
payment, people just change their minds. This is the business 
we are in.
    That means we make a lot of deliveries out of our stores to 
our customers' homes. We also spend a lot of time picking up 
merchandise when customers choose to end their rental 
agreements. Then, we have to refurbish that unit if it comes 
back in rentable condition--and occasionally it does not--and 
then find another rental customer and make another delivery.
    We lower the rental rate on previously rented items. A 
piece of rental inventory might get rented 3 or 4 times before 
anyone owns it or we have to take disposition steps to move the 
product from inventory.
    Chairwoman Capito. Mr. Soto? If you could wrap up on your 
statement. Sorry. Your 5 minutes--give us a conclusion quickly, 
and--
    Mr. Soto. I will be happy to answer any of your questions.
    [The prepared statement of Mr. Soto can be found on page 78 
of the appendix.]
    Chairwoman Capito. Thank you.
    Our third witness is Ms. Vivian Saunders, a rent-to-own 
customer from Lewiston Woodville--did I get that right?--North 
Carolina. That is a long name for a town. Welcome.

    STATEMENT OF VIVIAN SAUNDERS, RENT-TO-OWN CUSTOMER FROM 
               LEWISTON WOODVILLE, NORTH CAROLINA

    Ms. Vivian Saunders. Thank you, and good morning, 
Chairwoman Capito, Ranking Member Maloney, and members of the 
subcommittee. Thank you for inviting me to speak this morning.
    My name is Vivian Saunders, and I am a longtime and proud 
rent-to-own customer from Lewiston Woodville, North Carolina. I 
first used rent-to-own in 1991 when my son was a toddler.
    He was allergic to disposable diapers, so we had to use 
cloth diapers, and we had to clean those cloth diapers. It 
seemed like if I wasn't sitting at the laundromat, I was 
driving to and from the laundromat. It was time-consuming and 
expensive.
    I couldn't afford my own washer and dryer, and none of the 
local stores would give me credit. Then, a neighbor told me I 
could rent-to-own a washer and dryer. Before long, I was doing 
laundry at home, saving on gas, and spending more time with my 
family. And I wasn't tossing change into a washing machine I 
would never own.
    The rent-to-own folks didn't care about my credit status. 
They worked with me and had faith in my intentions to pay. When 
we had trouble paying, they gave us the time we needed. No 
other store in my community would do that.
    Over time, through rent-to-own, we made our house a home. 
Just as we were proud to have our own washer and dryer, we took 
pleasure in the nice furniture we added to our home. Our kids 
didn't have to feel embarrassed, as they grew up, to bring 
people to our home. Later, in the 1990s when we hit financial 
hard times when my husband lost his job, we were able to return 
a microwave we were renting. That helped us get through those 
times by lowering our bills.
    Because it was a rent-to-own agreement, we could stop 
paying without causing negative repercussions like a default on 
our already bad credit. On another occasion, I rented a big 
screen television for a short time because a community group I 
was working with needed it to view videos related to our cause.
    When we were done, we returned it with no obligation to pay 
anymore. I liked the television so much that later, I got it 
for myself. Rent-to-own gives people a way to improve their 
lives even if they don't have much to start with.
    You see, our family lives in one of the poorest counties in 
America, North Carolina's Bertie County. Day in and day out, I 
see firsthand how kids are picked on and demoralized because of 
their living situation. They are outcasts for being poor.
    Having a home with nice furniture and a nice refrigerator 
empowers people. Rent-to-own empowers them by giving them the 
ability to furnish their homes with things most people take for 
granted day-to-day. And I know a little bit about how self-
worth impacts people.
    I used to run an alternative school and now run an 
afterschool program for some of the poorest kids in our county. 
The student enrollment in this program is 6th to 12th grade 
boys. They have been expelled from the public school system and 
few believe that investing in these boys' future would yield 
any positive outcome.
    We brought technology, computers, and challenging 
curriculum to what many refer to as discarded boys. But the 
best computers and latest technology mean little without 
respect for these students and the belief that they can achieve 
anything.
    It is that powerful combination that is helping these 
students to improve their educational outcomes and grow into 
caring young men who also want to help others in their 
community.
    It was not simply owning things like new furniture and a 
refrigerator but the fact that I felt worthy of ownership, felt 
valued as a customer. What I have learned living and working in 
Bertie County is the best way to get things accomplished is to 
be honest and respectful.
    If this experience has taught me anything, it is the value 
of dignity and self-esteem in the lives of today's kids. I have 
also learned that out of practical day-to-day lives, you need 
to have plenty of refrigerators and freezers on hand to prepare 
meals for these kids. And today, I am fortunate to be in a 
position to have donated some of my old refrigerators and 
freezers, which I acquired through rent-to-own, to the schools 
that I run.
    I am also fortunate to have been unharmed in a string of 
tornadoes which tore apart my community on April 17th. Ten 
families I know lost their entire homes. Others I know had to 
move because of damage to their homes. While their homes were 
being repaired and rebuilt, those families needed ways to 
manage their day-to-day lives.
    So they went to local rent-to-own stores and rented beds 
and furniture to tide them over until they could move back into 
their homes. Rent-to-own has helped me in so many ways for so 
many years, and helps others in my community. Their help goes 
beyond just getting nice things for my home.
    The pride it gave me to be able to provide for my family 
has played at least a small part in helping me get where I am 
today, to be able to help others. I am proud to say I am a 
rent-to-own customer. I hope my testimony has given some 
perspective on why rent-to-own works well for so many people, 
including my son, whose diapers introduced me to rent-to-own 20 
years ago.
    We are just two of the millions of customers who have 
relied upon and appreciated rent-to-own over the years.
    Thank you for allowing me to give my testimony.
    [The prepared statement of Ms. Vivian Saunders can be found 
on page 74 of the appendix.]
    Chairwoman Capito. Thank you. Very good. I appreciate it.
    And our final witness is Ms. Margo Freeman Saunders, of 
counsel, National Consumer Law Center. Welcome.

  STATEMENT OF MARGOT FREEMAN SAUNDERS, OF COUNSEL, NATIONAL 
                      CONSUMER LAW CENTER

    Ms. Margot Saunders. Thank you, Madam Chairwoman, Ranking 
Member Maloney, and members of the subcommittee.
    The National Consumer Law Center thanks you for inviting me 
to testify today. I offer my testimony on behalf of our low-
income clients as well as the Consumer Federation of America 
Consumer's Union and the U.S. Public Interest Research Group.
    On behalf of the millions of consumers that we collectively 
represent, we urge you to reject H.R. 1588. This bill will not 
help consumers. It will only hurt them.
    Consumers need protections from the exorbitant prices that 
rent-to-own dealers often charge consumers. They need 
protections from the high fees. They need assurances that they 
can reinstate their contracts with reasonable fees and under 
reasonable conditions after they have spent considerable sums 
trying to purchase the items.
    While we believe that even the most precise disclosures 
would not adequately protect consumers in these transactions, 
the disclosures required by this bill provide misleading and 
deceptive information. The topic today is whether there is a 
potential role for Federal regulation of rent-to-own 
transactions, and we think there is. Unfortunately, this bill 
does not provide it.
    The intention of this bill is to preempt the laws of four 
States: Minnesota; Wisconsin; New Jersey; and Vermont. In those 
States, the courts have held that the rent-to-own transactions 
are consumer credit sales, and thus are governed by the 
interest rate caps required of consumer credit sales.
    As we know, most rent-to-own consumers enter transactions 
with the expectation of buying, and most contracts do not 
result in the purchase, but most from the FTC and the APRO, the 
Association of Progressive Rental Organizations information we 
also know that most consumers who intended to buy succeed in 
buying over several contracts.
    So, the rental cost on a periodic basis is the critical 
factor to those customers. I have reviewed every State law, and 
I can tell you that most of the information required in the 
contract disclosures that is in H.R. 1588 is already required 
in most State laws.
    Almost all, but not Massachusetts--Mr. Hawkins is correct--
State laws do already require reinstatement rights. But this 
bill is new in that it does require disclosures of cash price. 
What the FTC had recommended were price tag disclosures. The 
FTC recommended disclosures on the item itself. This bill does 
not require price tag disclosures. It simply requires 
information to be somewhere in a catalog on the floor.
    Moreover, when you look at the information that is required 
on those price tag disclosures--if you look at page seven of my 
testimony, I have done an analysis of the information that 
would be required on the point of rental or price tag 
disclosures, and the actual cost to purchase the items, you 
will see that there is a significant difference.
    The price tag disclosures would show that the rental 
purchase price is $37 for this sample television, but the 
actual cost would be closer to $45. The price tag disclosure 
would show the total rental purchase price would be $3,900, 
whereas the total cost would be over almost $4,700.
    The information in the disclosures would not be helpful if 
they are deceptive. Moreover, unlike every other Federal 
consumer protection law, like the Truth in Lending or 
Electronic Funds Transfer Acts, the Board is not provided with 
adjustment authority.
    The Board would not have the authority to adapt the 
disclosures and make them appropriate. There are no meaningful 
penalties in this bill, and the penalties in this bill are 
identical to the penalties in almost every State law.
    And there is no assignee liability for anything other than 
violations that are apparent on the face of the document. So we 
do believe that there are disclosure and substantive 
protections that Federal law could provide to this industry.
    We agree that people like my seat mate, Mrs. Saunders, have 
benefited from this industry. We are not trying to shut down 
the industry. But we think there are substantial ways that the 
disclosures and the substantive provisions could be improved.
    I would be happy to answer any questions.
    [The prepared statement of Ms. Margot Saunders can be found 
on page 64 of the appendix.]
    Chairwoman Capito. Thank you.
    I want to begin by thanking you all for your statements, 
and asking Ms. Vivian Saunders, you have heard Ms. Margot 
Saunders state that in her research showing that some of the 
disclosures were--she disputes some of the disclosures.
    When you first went for the washer and dryer, did you feel 
as though you were presented with information that accurately 
portrayed what your obligation was going to be, what your 
purchase price could be, and how do you feel about the first 
transaction that you made?
    I understand it gave you a way to do something that was 
extremely important to you as a family.
    Ms. Vivian Saunders. Yes, ma'am. When I first went to rent-
to-own, it was completely--they go through the contract that 
you are in step-by-step. They let you know that you have a 
choice. It is a conscious decision whether you want to make 
that choice to go through with that contract or not.
    They were very transparent with what they told me I would 
have to do. They were very transparent with my obligations, and 
they also told me that if I ran into difficult times to let 
them know--don't avoid the store, just call them, because they 
had measures in place that would help me, and if I couldn't 
follow through on the payment, that I could return it at any 
time.
    Chairwoman Capito. Did you return those--the washer and 
dryer?
    Ms. Vivian Saunders. No, ma'am. I never returned the washer 
and dryer.
    Chairwoman Capito. So, you ended up fulfilling your payment 
agreement and they became yours?
    Ms. Vivian Saunders. Yes, ma'am. I fulfilled my payment 
agreement--
    Chairwoman Capito. Okay.
    Ms. Vivian Saunders. --with the washer and dryer.
    Chairwoman Capito. Mr. Soto? I have learned that in these 
agreements, there are no credit checks.
    Mr. Soto. Yes, ma'am.
    Chairwoman Capito. What kind of a--we have heard so many 
different arenas here before the committee where everybody has 
a credit score and you meet certain obligations and credit 
card, mortgages, etc., etc.
    Obviously, this is a business model that works for your 
industry. What has been your--I guess, you don't have a--do you 
have a default rate, or people who just walk away or--can you 
tell me how not doing any kind of credit check or anything is 
good for your business?
    Mr. Soto. If we did a credit check, we probably would find 
that the folks who are coming into our stores wouldn't qualify.
    Chairwoman Capito. Right.
    Mr. Soto. So that is not even part of our program. What we 
look at is we have them fill out an agreement that asks for 
information on their residence, information on their 
employment. We ask for a few references, and based on that, we 
will rent to an individual.
    So it is very, very simple. If the information you have 
given is true, then we will do business with you.
    Chairwoman Capito. Thank you for that. In terms of the 
information, Ms. Saunders of the National Consumer Law Center, 
your opposition is that there could be better disclosures, more 
upfront disclosures.
    In light of what you have heard from the two witnesses--I 
am sure you have heard this before--and then our previous 
witness saying that there have been a very small amount of 
consumer complaints concerning this industry. Does that change 
your opinion at all or reform it or?
    Ms. Margot Saunders. At the National Consumer Law Center, 
we receive a lot of complaints about rent-to-own from the 
lawyers around the country who represent these clients.
    Chairwoman Capito. Generally, what are the top two 
complaints?
    Ms. Margot Saunders. Pardon me? I didn't--
    Chairwoman Capito. The general top two complaints--that it 
doesn't work or they feel like they are getting ripped off or--
    Ms. Margot Saunders. Price and the refusal to reinstate. 
Most consumers of rent-to-own would be more likely to complain, 
if they are going to complain to anyone, to a local legal 
services or to an attorney general.
    These are among the most unsophisticated and least 
financially proficient consumers in the country, and they are 
unlikely to think to complain to the FTC.
    But I do have to congratulate the industry that in the last 
20 years, we have seen a substantial reduction in the types of 
repossession and unfair tactics that we used to see. And I 
myself rented-to-own from a dealer in West Virginia and was 
very satisfied.
    I think this industry is very successful in the way that it 
treats its customers. I think they treat their customers very 
well, and our complaint with the bill is not, again, that we 
want to get rid of the industry, but to mandate on a Federal 
level more appropriate and less deceptive disclosures and 
actually deal with the price, which is the real problem that we 
have with the industry.
    Chairwoman Capito. Thank you.
    And quickly, Mr. Soto, I am curious, has your business 
changed at all over the last 2 or 3 years in light of the 
financial situation in the country and the higher unemployment? 
You have to be brief, though, so I don't violate my time.
    Mr. Soto. I am sorry, with regard to--
    Chairwoman Capito. With regard to more people coming in. Is 
your business bigger, better? Are you seeing people renting 
more utilitarian items as opposed to fluff items--what would be 
considered fluff items?
    Mr. Soto. I can tell you that our business is doing well. 
And certainly, when the economy changes, there are different 
groups of people who will come into this type of transaction.
    So we are not only finding the consumer who we place in 
that category of being the less--the one that is less 
financially prepared, but we find folks of all means coming in 
and doing business with us.
    Chairwoman Capito. Thank you.
    Mrs. Maloney for 5 minutes?
    Mrs. Maloney. I thank all of the panelists for your 
testimony today, and I would like to first ask Ms. Margot 
Saunders, as many people testified that most States, including 
my State, New York, treat rent-to-own contracts as leases as 
this bill would do--the Federal proposed bill would do. Why 
then shouldn't we just adopt the standards that most States 
have set?
    Why, in your opinion, is it better to treat these as credit 
sales?
    Ms. Margot Saunders. Mrs. Maloney, I have been fighting 
rent-to-own legislation for almost 30 years, and I did, indeed, 
start out pushing for these transactions to be dealt with as 
credit sales, but we are no longer taking that position.
    We recognize that rent-to-own transactions are different 
than credit sales. We are simply--in this testimony--defending 
the rights of four States to treat these transactions as credit 
sales as those States have chosen.
    And in those States, the transactions are much--the costs 
of the transactions are required to be much lower, and that 
seems to me to be a matter of States' rights protecting 
consumers that it is my job to defend. But if I were to write a 
Federal bill that dealt with rent-to-own, I wouldn't insist 
that they be treated as credit sales.
    Mrs. Maloney. One of the items that they pointed out in 
testimony is that the consumer will be able to return the 
merchandise at absolutely any time. Does that change your mind 
a bit that the consumer will have this new right under the 
bill?
    Ms. Margot Saunders. The consumer has that right under 
every State law that governs rent-to-own, and in the five 
States which are slightly different, including North Carolina, 
and Vermont, they have that right.
    In New Jersey, Minnesota, and Wisconsin, which has no rent-
to-own applicable legislation, nobody is stopping them from 
returning it. So, I don't think this bill adds that aspect in 
any way to--it doesn't protect consumers in that way.
    Mrs. Maloney. I think, Professor Hawkins testified, in a 
sense, that this was a new protection, but--
    Ms. Margot Saunders. The right of reinstatement in this 
bill is new and would apply to Massachusetts alone. Every other 
State, so far as I am aware, that has a rent-to-own transaction 
bill, already has a right of reinstatement.
    Mrs. Maloney. And in his prepared testimony, he cites 
protections that he believes that the bill will provide in 
terms of disclosures, the right to reinstate, as I said, and 
other protections.
    Do you think that these protections are sufficient that he 
testified to?
    Ms. Margot Saunders. No, ma'am. I think the problem, as I 
described in my written testimony and my oral testimony, is 
that the disclosures required in this bill are downright 
deceptive, and that the board--if they were the regulatory 
authority under the bill wouldn't even have the authority to 
fix those disclosures, unlike every other Federal consumer 
protection law.
    Mrs. Maloney. But I believe he testified that it would not 
preempt any of the State laws that exist.
    Ms. Margot Saunders. It would preempt five State laws, 
actually--four State laws, specifically, and also have a 
preemptive effect on North Carolina with no real downside 
there.
    Mrs. Maloney. Only the States that defined it as credit, 
correct?
    Ms. Margot Saunders. Yes.
    Mrs. Maloney. Okay. In your view, does the law create a 
true Federal floor for consumer protections for these 
transactions?
    Ms. Margot Saunders. To the extent that the four States--
New Jersey, Minnesota, Wisconsin and Vermont--State laws would 
be preempted, and those State laws are better than this law. 
This is not a floor. It is a ceiling.
    Mrs. Maloney. Oh, you see it as a ceiling. He testified it 
was a floor, and he also testified, I believe, that it would 
not in any way weaken State laws, and you--
    Ms. Margot Saunders. Mrs. Maloney, I have been a consumer 
law lawyer for over 30 years. I have published numerous books. 
I have testified before this committee and the Senate Banking 
Committee over 30 times. I have published numerous law review 
articles, and I am here today to tell you that I disagree with 
Mr. Hawkins.
    Mrs. Maloney. And would you testify on how the rent-to-own 
customer can compare costs with others, say merchandise that is 
available, possibly traditional--my time has expired.
    Chairwoman Capito. Thank you, Mrs. Maloney.
    Mr. Luetkemeyer for 5 minutes for questions?
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Ms. Vivian Saunders?
    Thank you very much for your testimony today. It was very 
well done. I think one of the key points in your testimony that 
you didn't say--you skipped over--is that by being able to go 
to the rent-to-own store, you were able then to establish a 
credit history.
    Ms. Vivian Saunders. Yes, sir.
    Mr. Luetkemeyer. And as a result, you were then able to 
purchase other things later on as a result of the credit 
history you established. I think it is a really key point that 
it allows people who may have no credit history at all or a bad 
credit history to be able to go back and start over and 
establish adequate credit history.
    And one of the--I think, it is a key point that I 
appreciate that you made in your testimony today.
    Ms. Margot Saunders?
    You were talking about the disclosure being deceptive. Can 
you explain why it is deceptive?
    Ms. Margot Saunders. Yes, sir. If you take a look at the 
definition of rental payment in section 1001, subsection 12, 
you will see--and that is the definition--that is the 
information that has to be included in the point of rental 
disclosures as required in section 1010, and you compare that 
to the periodic payment that is in section 1001, subsection 10, 
which--
    Mr. Luetkemeyer. I am talking about--you said there is 
something deceptive in the disclosure to the consumer? You are 
talking about the bill.
    Ms. Margot Saunders. There is something--the bill would 
require disclosures that would actually be deceptive, because 
the point of rental disclosures that would be required were 
actually different than the real cost.
    In other words, the rent-to-own merchant would be required 
under this bill to disclose $37, for example, as a point of 
rental disclosure. So the catalog or the disclosures hanging 
from the television would say $37, when actually the consumer 
would have to make a weekly payment of $44.
    Mr. Luetkemeyer. Okay.
    Mr. Hawkins?
    Would you like to elaborate on that a little bit? What do 
you think about that?
    Mr. Hawkins. I think we have read the law differently in 
two important ways. In one way, just about whether or not you 
have to disclose things on the price tag.
    Ms. Saunders said that you don't. You could just do it in a 
catalog. But I read 1010(b)(1) differently. That is the one 
that says a merchant can make the disclosure in a catalog. It 
says, ``If the merchandise is not displayed on the merchant 
showroom or if displaying a card tag would be impractical due 
to the size of the merchandise.''
    So I think it is in--I think--from the way I have read the 
law, it is inaccurate to say that you could just put it in a 
catalog. You could only do that if you didn't actually have 
that good on the floor. And I have no idea what it means that 
it is impractical due to the size of the merchandise. I don't 
know if that means merchandise is really, really huge or 
really, really small, but it is hard for me to imagine a 
situation where that could occur.
    So I don't think it is deceptive for that reason. And in 
terms of the total cost, even the price tag disclosures require 
you put the rental purchase cost, which is in section 101(15), 
which that rental purchase cost is very similar to a finance 
charge in the Truth in Lending Act, in 15 U.S.C. 1605.
    The same sorts of fees that are not included, like life 
insurance that you don't have to take and you signed away 
saying, I don't have to take this life insurance. That is not 
included when you calculate a finance charge under the Truth in 
Lending Act.
    And I think that the example that Ms. Saunders uses of 
someone having to pay a delivery fee and that not being a fee 
that is disclosed under this rental purchase cost is simply 
inaccurate.
    I haven't talked to every single rent-to-own firm in 
America, but most and the biggest don't charge for deliveries 
as Mr. Soto testified himself. And so, to me, adding that as a 
cost is a bit of a red herring in saying that it is deceptive 
for that reason, but it could be that we are just--I have read 
the law wrong, but that is how I interpret the provisions.
    Mr. Luetkemeyer. Okay. I see my time is about up, so I will 
just yield back.
    Thank you, Madam Chairwoman.
    Chairwoman Capito. The gentleman yields back.
    Mr. Watt for 5 minutes?
    Mr. Watt. Thank you, Madam Chairwoman.
    Let me start by welcoming my friend, Ms. Vivian Saunders, 
and my friend, Ms. Margot Saunders, both of whom have spent a 
substantial amount of time in North Carolina or are residents 
of North Carolina. I am always happy to have folks here from 
North Carolina, even if they seem to be on opposite sides of 
this issue. I am not sure they are, to be honest with you.
    So let me make sure that I am clear about whether they are 
or not.
    Ms. Vivian Saunders?
    I assume that whatever dealings you had were all within the 
State of North Carolina?
    Ms. Vivian Saunders. Yes, sir.
    Mr. Watt. Okay. So none of it was across any State lines or 
anything?
    Mr. Soto?
    Mr. Soto. Yes, sir.
    Mr. Watt. What percent of your business is in the State of 
Texas as opposed to with customers who can take your--first of 
all, what percent of your business is--what percent of the 
contracts are actually entered in the State of Texas?
    Mr. Soto. One hundred percent.
    Mr. Watt. Okay. And if somebody takes one of your 
televisions across a State line, what rules apply?
    Mr. Soto. We typically try to find a solution that makes 
sense for the consumer and for us. If the consumer wants to 
keep the product, we will work out an arrangement.
    Mr. Watt. But your assumption is that your deal is going to 
be inside the State of Texas. Isn't that right?
    Mr. Soto. That is typically how it works.
    Mr. Watt. Okay.
    Mr. Soto. We do service a certain community, and most of 
our customers are from within a 3- to 5-mile radius.
    Mr. Watt. And Ms. Vivian Saunders, again, even you referred 
to your rent-to-own store as your local rent-to-own store. I 
noted that.
    Now, the question I have is, I guess you don't really have 
any complaint or dog in the fight, lets--as we would say in 
North Carolina--about whether we are raising or lowering the 
standards for the State of Vermont, or do you have any opinion 
about what we ought to be doing about Minnesota, Wisconsin, New 
Jersey, and Vermont?
    Ms. Vivian Saunders. I feel like if the Federal--if it is 
approved by you guys that it will be across-the-board, you 
know.
    Mr. Watt. But even if it is lowering the standard in those 
States, or changing the standard--your State is a local--your 
transactions are local. Why would you think the Federal 
Government ought to be dictating the standards in this case?
    Ms. Vivian Saunders. I think, without--and this is just my 
opinion as Vivian--without even the intervention of anybody, 
this industry has improved so much--
    Mr. Watt. I think we all have conceded that.
    Ms. Vivian Saunders. But I think also that if you guys 
being the body that governs everybody in the United States, if 
you intervene that, out of respect, for your body, you are 
stepping in, it makes a statement to everyone.
    Mr. Watt. You would preempt all the State laws under that 
theory. That is a fair way to look at things.
    Ms. Vivian Saunders. Yes, sir.
    Mr. Watt. But these transactions don't--as Mr. Soto has 
indicated--take place across State lines. And I can't figure 
out why even my most--I just can't figure out why somebody 
wants to apply Federal law to something that, historically, has 
been taken care of within the States, and even Ms. Saunders--
Vivian Saunders, that is--in your experience, all of your 
experiences have been good.
    That is why I started my original questions of the prior 
panelist by saying I am neither an advocate for, nor an 
adversary of, the rent-to-own industry. The question is, where 
should they be regulated?
    And that is the question I still haven't quite figured out. 
I have figured it out for my own purposes. I can't figure out 
why some of my colleagues, who tend to be States' rights 
advocates on most issues, feel like all of a sudden, this ought 
to be a Federal issue.
    But I am still trying to figure that out. And I am going to 
keep working at it. I appreciate you all being here, and--
    Mr. Soto. Mr. Watts? May I respond to that?
    Mr. Watt. Yes, sir. You may if the chairwoman will allow 
you to.
    Chairwoman Capito. We will give you 30 seconds to respond, 
Mr. Soto.
    Mr. Watt. I am fine with it, but I am out of time.
    Mr. Soto. I just wanted to mention that when we were 
looking to secure a loan to open our business, we were dealing 
with many national banks, and we found that, because there was 
uncertainty in the definition of rent-to-own, it made it 
difficult for us to be able to secure a loan.
    We visited 12 banks, and each one of them turned us down. 
So it--
    Chairwoman Capito. Thank you.
    Mr. Soto. Thank you, ma'am.
    Chairwoman Capito. Mr. Canseco for 5 minutes for questions?
    Mr. Canseco. Thank you, Madam Chairwoman.
    Mr. Hawkins?
    Let me ask you something. Ms. Margot Saunders stated that 
this bill does not provide a floor, that it provides a ceiling. 
Do you find that to be true?
    Mr. Hawkins. I do not. It is like every other Federal 
consumer protection law--like the Fair Debt Collection 
Practices Act that says if States provide greater consumer 
rights, which courts uniformly read as a one-way ratchet. If 
they restrict businesses, then they are not inconsistent.
    There are only two distinct ways that it prevents States 
from acting, and I don't think those are things that actually 
protect consumers, one of which--Ms. Saunders has said that she 
no longer thinks it is important to treat it as a credit sale. 
So really, APR is the only possible restriction this is making 
on the States that seems to matter.
    Mr. Canseco. So, in other words, if the State has a more 
stringent rule or regulation on its books, it defaults to the 
State.
    Mr. Hawkins. Right.
    Mr. Canseco. Okay. But all it does is just provide a floor 
of minimum standards for any State that is under that floor?
    Mr. Hawkins. That is my understanding.
    Mr. Canseco. Thank you, sir.
    Mr. Soto, please describe the typical customer who walks 
into your store: age; income level; family status.
    Mr. Soto. We are finding that is changing with the economic 
situation being what it is. We typically find, I guess, that 
our customer will range anywhere from early 20s to late 40s and 
50s. We find that individuals are renting for different 
reasons. Some come in wanting to rent-to-own. Some come in to 
rent just for a specific period of time.
    Some want to try it; they are not sure whether they want to 
own it. Sometimes, there is a loss of income in the household 
and they are uncertain about their creditworthiness. They are 
not comfortable with entering into additional credit, so they 
want to do something that if they have to exit out of it 
quickly, they can.
    So it is an ever-changing customer.
    Mr. Canseco. What would they do if these customers did not 
have the option of a rent-to-own industry?
    Mr. Soto. If they didn't have an option?
    Mr. Canseco. Yes.
    Mr. Soto. The other options that are available to them are 
things like craigslist online, maybe furniture stores that sell 
used product, maybe pawn shops. But what you find in those 
environments are products that have pretty much lived their 
life. You find that people are selling items after they have 
had them for, maybe 10 years.
    Within our system, the product will typically liquidate 
inside of 2 years. So, customers know if they are getting 
something that has been previously rented, obviously, that 
merchandise is reduced down based on perceived value.
    The customer knows that they are getting a true value. And 
not just the product, but they also are getting many other 
benefits that come with it.
    Mr. Canseco. Like a guarantee.
    Mr. Soto. Absolutely.
    Mr. Canseco. And repair.
    Mr. Soto. I can tell you that our customers have a money-
back guarantee, the satisfaction guarantee. I can tell you we 
have lifetime reinstatement. I can tell you that we service our 
product 100 percent. We provide a loaner if we have to bring 
their product in. So, there are numerous benefits that we 
offer.
    A customer doesn't have to pay extra for deliveries. We set 
it up. There is a lot of value that is built into a rental 
agreement.
    Mr. Canseco. You have recently expanded your business to a 
total of five stores within the San Antonio area.
    Mr. Soto. Yes, sir.
    Mr. Canseco. Do you have an estimate as to how many people 
you have employed in these stores over the past years?
    Mr. Soto. How many people we have employed?
    Mr. Canseco. You have employed, yes.
    Mr. Soto. I can tell you that we--each time that we open a 
new location, we are employing six, seven, eight individuals, 
depending on the growth of the store.
    And each year, we have been adding a new store. So, we are 
excited about the opportunities to expand, but again, that 
uncertainty of the definition of our transaction--it makes it 
difficult when you are talking to bankers who don't always 
understand the transaction.
    Mr. Canseco. One final question before my time is up. Would 
the bill that Mr. Clay and I are introducing provide certainty 
to the industry and, in turn, boost store owners' ability to 
expand and create more jobs?
    Mr. Soto. Absolutely. And, again, it is balanced in that it 
provides that safety net for the consumer, and it also provides 
that certainty for us so that individuals--so that everyone 
knows the difference between a lease and sale. And that is 
basically what this is. It is just defining who we are and how 
we operate.
    I can tell you that we exceed everything that is in that 
bill. Those are not things that shouldn't exist out there. And 
for it to be consistent throughout the country, that would 
strengthen the industry.
    Mr. Canseco. Thank you, Mr. Soto.
    And thank you, all panel members, for coming here today. My 
time has expired.
    Chairwoman Capito. Thank you.
    Mr. Meeks for 5 minutes for questions?
    Mr. Meeks. Thank you. One of the things of being close to 
last is all the questions have been asked. They just haven't 
been asked by me. So first, to Ms. Vivian Saunders, let me just 
also--as well as all the panelists, thank you for your 
testimony.
    And I can relate to what you have testified to, Ms. 
Saunders, because I did the same thing. I can recall when I 
grew up in public housing, and when I went to college--in fact, 
here in Washington, D.C.,--my dad came down, and he didn't have 
much money left, and he saw that I was sleeping on a beach 
chair, because I couldn't afford anything else.
    And he said, I can't have you sleeping on a beach chair--I 
was going to law school at the time--we have to get something 
for you to sleep on. And, going to the stores, we couldn't 
afford it.
    So the choice was sleeping on a beach chair, or we went to 
a Rent-A-Center and I was able to rent furniture for the 
apartment that we were in so that I could sleep on a bed and--a 
lot of folks don't understand, sometimes when you don't have a 
lot of money--when your option is something or nothing.
    And times when--if you go to a Sears or some other 
department store, and if you don't have the good credit, you 
can't get it, so your option would be nothing. Or even there, 
you find that, in trying to buy it, the interest rates are 30 
percent, 29 percent, 28 percent anyway, and you don't have the 
right to return it when you are done with it if you need to 
return it. So, it is only a temporary piece.
    I could really relate to your testimony before us today. 
And I have been fortunate enough to also have had the 
opportunity to see that point of view but also now understand 
Mr. Soto's point of view as a business owner and why that is 
important for you to be able to expand and have businesses in 
the community.
    It is good business for you. We want you to do that, and we 
want you to make some money, because if you are making some 
money, that will also create some jobs for local individuals in 
the community, because in my district where we have Rent-A-
Centers--and I walk in there, I see that they have hired 
individuals who live in the community who otherwise would have 
been without a job and income.
    And that helps them. So it is from both ends of the 
spectrum that I see that this is good, and from the testimony 
that I hear, even from Ms. Margot Saunders that she has had the 
opportunity that she had to rent. So I think that she wants to 
preserve the industry and, though, there are issues and 
questions that we all want to tighten up and try to make sure 
that we work it.
    So with that, my quick question, I guess, first, to 
Professor Hawkins is, do you think that the CFPB will have the 
authority or not have the authority to regulate rental-to-
purchase agreements?
    Mr. Hawkins. I think it is very unlikely under the Dodd-
Frank Act that they have that authority, because they are given 
the authority over financial products or services, and there is 
a long list of things that qualify for that, none of which seem 
to match the rent-to-own transaction.
    The definition of ``credit'' involves deferring debt or 
deferring payment to purchase, and neither of those, as you 
have heard today, are involved in a rent-to-own transaction, 
and the CFPB can regulate leases but only if they are for 
greater than 90 days.
    There are no rent-to-own leases that I know of that are 
longer than 90 days. So I think it is very unlikely that, even 
if they wanted to regulate the industry, they would legally 
have the power to do so.
    Mr. Meeks. Ms. Saunders?
    Do you agree?
    Ms. Margot Saunders. Yes, I do.
    Mr. Meeks. Okay.
    Mr. Hawkins?
    Do you believe rent-to-own customers are better off with or 
without the point of rental disclosure in section 1010 of H.R. 
1588?
    Mr. Hawkins. I think they are better off with them. And I 
wanted to just make a point. Earlier, Ms. Saunders had 
mentioned that she had looked at every rent-to-own law and said 
that the disclosures in those laws were all better. And I just 
wanted to clarify, I was not disputing that fact at all. What I 
am disputing is that I don't think there are any existing rent-
to-own laws that require you to segregate all of that important 
information and put it at the front of the contract.
    Because, as everyone in here knows, most of us don't read 
all 10 pages. We just read that first page. And so, to me, that 
is the major advance that this bill provides, not that it 
provides better definitions of rental costs or requiring you to 
say this is a used or new good.
    Mr. Meeks. Thank you, and I think I am out of time.
    Chairwoman Capito. I would like to thank the gentleman.
    And, Mr. Jones, for 5 minutes?
    Mr. Jones. Madam Chairwoman, thank you very much. And I sit 
here in great appreciation. I think this bill started maybe in 
the 105th Congress, and I introduced it in the 107th Congress 
with a cosponsor from the Democratic side, and we actually got 
it to the House Floor and through the House, and it died in the 
Senate.
    But I believe sincerely that--and Ms. Vivian Saunders, I 
want to thank you. You have done so much wonderful work with 
young people who would never have had a chance in life if it 
had not been for your love, and I know God has blessed you in 
many, many ways.
    And, Margot Saunders, I believe we had some legislative 
issues when we were in the general assembly, and you were there 
at that time. It is good to see you again, as well.
    Ms. Margot Saunders. Thank you.
    Mr. Jones. And, I guess, my interest in this--I have three 
military bases in my district--Camp Lejeune, Cherry Point 
Marine Air Station, and the Seymour Johnson Air Force Base--and 
I think about the young soldiers, the young marines, who many 
times are married--too soon, but they are married. And I 
realize something that Ms. Vivian Saunders said that is so 
true, and that is, not everybody is as fortunate as other 
people who are fortunate.
    And if it were not for rent-to-own businesses, I don't 
think that a lot of young people, as was mentioned earlier, as 
well as young families, would have that opportunity. And in 
this very difficult economy, if there is any time that I think 
that legislation light has been introduced to create a floor 
for consumers and give them an opportunity to have something 
nice that is reasonable, I think now is the time.
    I don't think this country is going to get any better 
economically in the near future at all. And that is why I very 
much support this legislation and think that the need is 
greater now than maybe it was when I introduced the bill in 
2007 and the Congress before that, that the time has come for 
Federal legislation that will protect the consumer and create a 
better understanding of the contract.
    And, Ms. Saunders, that is where I would go back to you--
Margot Saunders and then maybe let Ms. Vivian Saunders answer 
as well--you have distinguished yourself in working for the 
consumer, and I again want to compliment you on that, but if I 
understood from your statement that, maybe if the disclosures 
part of this bill was a little stronger, that--you didn't say 
you would support it, let me make that clear, but it might be a 
better piece of legislation for the consumer.
    If you had to make one suggestion, and I know that is 
difficult, but one suggestion to improve the disclosure section 
of this bill, what would it be?
    Ms. Margot Saunders. Within those very limited constraints, 
I would make the point of sale disclosures tighter and more 
consistent with the actual cost to be required of the consumer.
    I would like to make a few other changes to the bill as 
well, but you didn't ask about that.
    Mr. Jones. Professor, what would be your reaction to what 
Ms. Saunders just said as acceptable or not acceptable and, if 
not, why?
    Mr. Hawkins. Obviously, I have expressed disagreement with 
some of how she has read the law, but I definitely think you 
can always work to make the language clearer, and so--her 
objections to the disclosures don't seem to be things to me 
that would--if you could work them to make the disclosures more 
accurate, I think that would be an important move.
    Mr. Soto. Mr. Jones?
    Mr. Jones. Yes, sir?
    Mr. Soto. When it speaks to pricing in a catalog, I think 
what it means is that you have limited space in a showroom. So 
if a customer wants an item that you currently do not have, you 
still can provide the prices for that. And if your showroom 
floor is only so big, you might have product in the backroom 
that is being staged to replace the product that is in your 
showroom.
    So, again, it is very difficult for you to set up a stand, 
possibly, with the pricing. But I believe that is what that 
means. But it certainly is calling for full disclosure on each 
item that is being displayed that a customer would like.
    Mr. Jones. Madam Chairwoman, thank you. And I do, again, 
support this legislation. Thank you.
    Chairwoman Capito. Thank you, Mr. Jones.
    Mr. Miller has said that he does not have any further 
questions, so I will go to Mr. Clay for questioning for 5 
minutes.
    Mr. Clay. Thank you, Madam Chairwoman, and I will be as 
brief as possible.
    Let me ask Ms. Margot Saunders, what type of reinstatement 
provisions would provide both adequate repossession rights for 
the rent-to-own merchant while at the same time ensuring 
sufficient ownership rights for the rent-to-own consumer?
    Ms. Margot Saunders. Mr. Clay, I am in the uncomfortable 
position of not being able to give you an answer that I feel 
very comfortable with.
    I like what Mr. Soto provides, which he says is a lifetime 
reinstatement provision--promise, and if the bill were to have 
that, I think that would be wonderful. I am uncomfortable 
saying that is what we would require, because I need to hear 
whether that is--just how unlikely and how unreasonable that 
is, but if Mr. Soto can provide it, I don't know why we 
wouldn't require it of everyone.
    That would be a very valuable consumer protection that you 
would actually raise the floor for consumers around the 
country. That is a real concern of people who--notice that in 
the reinstatement rights in the bill, it is only 7 days that 
you have to reinstate, and a lot of people are not sure that--
they may not have been able to act appropriately within 7 days.
    Mr. Clay. I see. Thank you for that response. How does a 
rent-to-own customer accurately compare the prices of rent-to-
own merchandise to products available at traditional retail 
stores now, and how can Federal legislation improve the 
capacity of rent-to-own customers to compare the cost of 
purchasing rent-to-own merchandise over buying the merchandise 
with cash or credit?
    Ms. Margot Saunders. Is that for me?
    Mr. Clay. That is for you, yes, ma'am.
    Ms. Margot Saunders. I think that there are imperfect 
solutions, but what the FTC witness was referring to as a 
difficulty with providing with an APR, he was saying--he was 
describing, I think, the problem with the starting price.
    An annual percentage rate is the comparison of the 
financing based on the original cost and the total cost. So the 
problem with rent-to-own transactions is that the original cost 
is often much greater in rent-to-own dealers, the cash price 
cost is much greater than it is at an equivalent merchant so 
that the APR that you get is not even truly reflective. That is 
one problem.
    Another problem is that, as Mrs. Capito pointed out, most 
contracts don't go through to fruition--through termination--
through the end of the contract so that the cash price--so that 
the annual percentage rate may be actually too low, because 
they haven't completed the purchase in one term.
    But the APR remains, probably, the best measurement that we 
have, as imperfect as it is, and there are ways of providing 
that information that may not be as objectionable to the 
industry. Mr. Gonzalez, many years ago, the chairman of the 
House committee, had introduced a bill which had a comparison 
that was not based on APR but looked somewhat like APR that 
allowed that comparison.
    Mr. Clay. Okay.
    Ms. Margot Saunders. And there are still some other 
options.
    Mr. Clay. Thank you so much for that response.
    Ms. Vivian Saunders?
    Over the last couple of years of introducing this 
legislation, a lot of consumer advocates have decided that this 
arrangement is not good for consumers. Some of us have taken 
criticism for being advocates of this legislation. In your own 
words, can you explain what would a consumer like you or people 
that you know would have experienced had their not been the 
option of other--the rent-to-own industry?
    Ms. Vivian Saunders. In my opinion, it is giving people an 
option so many times, and now, people like to take the options 
from impoverished people. They try to tell us when to eat, 
where to live, what we have to do, but we are getting tired of 
folks taking our options away.
    If you have bad credit, you don't have too many options. 
They are giving us a chance to have our children and our homes 
be as equal and a level playing field. When you empower young 
folks, and you give them respect, and they have respect in 
where they live, it gives them the mindset that they can do 
anything.
    We don't have a lot of options in a poor community. So, 
this gives us an option.
    Mr. Clay. Thank you, Madam Chairwoman, and I yield back.
    Chairwoman Capito. Thank you.
    Mr. Hawkins. Madam Chairwoman? May I add something to 
Congressman Clay's question about reinstatement, briefly?
    Chairwoman Capito. Yes. I will give you 20 seconds.
    Mr. Hawkins. Twenty seconds, okay. I think that, again, Ms. 
Saunders and I have read the bill differently. I read the bill 
as giving people 120 days if they have paid more than 50 
percent of the rental payments. And to me, that is a 
significant improvement over many States' laws.
    Many States only give those people 21 days. So if on day 
24, they have enough money, in many States they would be 
excluded from reinstating, but the Federal bill would allow 
them.
    Chairwoman Capito. I want to thank the members, and I want 
to thank the panel for their insightful testimony.
    The Chair notes that some members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses and to place their responses in the record.
    This hearing is adjourned.
    [Whereupon, at 12:12 p.m., the hearing was adjourned.]

                            A P P E N D I X



                             July 26, 2011







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