[House Report 107-590]
[From the U.S. Government Publishing Office]



107th Congress                                            Rept. 107-590
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 2

======================================================================
 
                 CONSUMER RENTAL PURCHASE AGREEMENT ACT

                                _______
                                

 September 9, 2002.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                             together with

                   DISSENTING AND SUPPLEMENTAL VIEWS

                        [To accompany H.R. 1701]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1701) to amend the Consumer Credit Protection Act to 
assure meaningful disclosures of the terms of rental-purchase 
agreements, including disclosures of all costs to consumers 
under such agreements, to provide certain substantive rights to 
consumers under such agreements, and for other purposes, having 
considered the same, reports favorably thereon with an 
amendment and recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     2
Purpose and Summary..............................................     2
Background and Need for the Legislation..........................     2
Hearings.........................................................     3
Committee Consideration..........................................     3
Vote of the Committee............................................     3
Committee Oversight Findings.....................................     4
Performance Goals and Objectives.................................     4
New Budget Authority and Tax Expenditures........................     4
Congressional Budget Office Cost Estimate........................     4
Constitutional Authority Statement...............................     7
Section-by-Section Analysis and Discussion.......................     7
Changes in Existing Law Made by the Bill, as Reported............     8
Markup Transcript................................................     9
Dissenting Views.................................................    53
Dissenting Views.................................................    55
Supplemental Views...............................................    57

    The amendment (made to the committee print document 
containing the text of the amendment as reported by the 
Committee on Financial Services) is as follows:

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

                          Purpose and Summary

    The purpose of H.R. 1701, the ``Consumer Rental Purchase 
Agreement Act,'' is to set a ``Federal floor'' for consumer 
protection in rental-purchase transactions. Most States 
currently regulate rental-purchase transactions as leases; 
however, the scope and consumer protection requirements of 
these laws vary significantly by State. The bill improves 
consumer protections in 32 States, while allowing other States 
to adopt more stringent protections. Currently, there is no 
Federal oversight or regulation of the rent-to-own industry. 
This bill amends the Consumer Credit Protection Act to provide 
such oversight and regulation.\1\
---------------------------------------------------------------------------
    \1\ 15 U.S.C. 1601 et seq.
---------------------------------------------------------------------------

                Background and Need for the Legislation

    On July 18, 2002, the Committee on Financial Services 
reported H.R. 1701, the ``Consumer Rental Purchase Agreement 
Act.'' (See H. Rept. 107-590 Part 1.) Thereafter the bill was 
sequentially referred to the Committee on the Judiciary for a 
period not later than September 9, 2002. The sections within 
the Committee's jurisdiction deal with civil liabilities, 
criminal liabilities, enforcement, and claims against the 
United States.
    H.R. 1701 amends the Consumer Protection Act to provide new 
Federal requirements in all rent-to-own agreements. In a rent-
to-own agreement the consumer typically leases a product for a 
month and has the option to return the product with no 
obligation or penalty, pay to keep the product another month, 
or purchase the product. The consumer usually acquires 
ownership of the product if it is leased for a specified amount 
of time, usually 18 months. Every year, millions of Americans 
enter ``rent-to-own'' agreements because they cannot otherwise 
afford the purchase price, qualify for credit, or need the 
product for a short period of time.
    A recent Federal Trade Commission (FTC) staff report, 
``Survey of Rent-to-Own Consumers'' (hereinafter Survey) has 
provided a comprehensive review of rent-to-own transactions and 
has served as the basis for H.R. 1701. While the Survey details 
many aspects of the typical consumer's rent-to-own experience, 
75 percent of those surveyed were satisfied. Because the 
``rent-to-own'' industry is not regulated by Federal law, a 
patchwork of State laws, regulations, and judicial 
interpretation currently serve as the only consumer protection 
for rent-to-own consumers. As a result, the Survey identifies 
the following inadequacies under the existing State based 
regulation of the ``rent-to-own'' industry: disclosure of total 
cost and other terms of purchase; annual percentage rate 
disclosures; price restrictions; regulation of collection 
practices; and regulation of reinstatement rights. While 
Federal legislation to regulate the ``rent-to-own'' industry 
has been considered by the Congress for more than a decade, 
H.R. 1701 provides consumers with more substantive rights than 
prior bills and addresses all of the inadequacies raised by the 
Survey.

                                Hearings

    No hearings were held on H.R. 1701.

                        Committee Consideration

    On Thursday, September 5, 2002, the Committee met in open 
session and ordered favorably reported the bill H.R. 1701, with 
amendment, 14 ayes to 12 nays, a quorum being present.

                         Vote of the Committee

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

                                                   ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................              X
Mr. Gekas.......................................................              X
Mr. Coble.......................................................              X
Mr. Smith (Texas)...............................................                              X
Mr. Gallegly....................................................              X
Mr. Goodlatte...................................................              X
Mr. Chabot......................................................              X
Mr. Barr........................................................
Mr. Jenkins.....................................................              X
Mr. Cannon......................................................              X
Mr. Graham......................................................
Mr. Bachus......................................................              X
Mr. Hostettler..................................................              X
Mr. Green.......................................................
Mr. Keller......................................................              X
Mr. Issa........................................................              X
Ms. Hart........................................................              X
Mr. Flake.......................................................                              X
Mr. Pence.......................................................
Mr. Forbes......................................................              X
Mr. Conyers.....................................................                              X
Mr. Frank.......................................................                              X
Mr. Berman......................................................
Mr. Boucher.....................................................
Mr. Nadler......................................................                              X
Mr. Scott.......................................................                              X
Mr. Watt........................................................                              X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters......................................................                              X
Mr. Meehan......................................................                              X
Mr. Delahunt....................................................                              X
Mr. Wexler......................................................
Ms. Baldwin.....................................................
Mr. Weiner......................................................
Mr. Schiff......................................................                              X
Mr. Sensenbrenner, Chairman.....................................                              X
                                                                 -----------------------------------------------
    Total.......................................................             14              12
----------------------------------------------------------------------------------------------------------------

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                    Performance Goals and Objectives

    H.R. 1701 does not authorize funding. Therefore, clause 
3(c) of rule XIII of the Rules of the House of Representatives 
is inapplicable.

               New Budget Authority and Tax Expenditures

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

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 3951, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, September 6, 2002.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1701, the Consumer 
Rental Purchase Agreement Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Ken Johnson 
(for Federal costs), who can be reached at 226-2860, Greg 
Waring (for the State and local impact), who can be reached at 
225-3220, and Paige Piper/Bach (for the private-sector impact), 
who can be reached at 226-2940.
            Sincerely,
                                  Dan L. Crippen, Director.

Enclosure

cc:
        Honorable John Conyers, Jr.
        Ranking Member
H.R. 1701--Consumer Rental Purchase Agreement Act.

                                SUMMARY

    H.R. 1701 would impose several restrictions on ``rent-to-
own'' transactions, wherein a consumer rents an item for a 
short time and retains the option to buy the item at the end of 
the rental period. For example, sellers would be required to 
disclose certain information about the terms of the rent-to-own 
contract and would be prohibited from assessing most fees for 
such contracts.
    Regulations to implement H.R. 1701 would be developed by 
the Board of Governors of the Federal Reserve System. Also, the 
Federal Trade Commission (FTC) would enforce the bill's 
provisions under the authority provided by the Federal Trade 
Commission Act, which allows the FTC to punish violations with 
civil penalties. Finally, H.R. 1701 would create new criminal 
penalties for merchants who knowingly fail to provide 
information to rent-to-own consumers as required under the 
bill.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing
    H.R. 1701 would cost the FTC about $650,000 a year. Because 
the bill would create new civil and criminal penalties and 
would impose costs on the Federal Reserve, we also estimate 
that the bill would have negligible effects on both direct 
spending and revenues. Therefore, pay-as-you-go procedures 
would apply.
    H.R. 1701 contains intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that 
complying with the mandates would result in no costs to State, 
local, or tribal governments. Therefore, the threshold 
established by UMRA ($58 million in 2002, adjusted annually for 
inflation) would not be exceeded.
    H.R. 1701 would impose private-sector mandates, as defined 
by UMRA, but CBO estimates that the direct cost of those 
mandates would fall below the annual threshold established by 
UMRA ($115 million in 2002, adjusted annually for inflation).

                           BASIS OF ESTIMATE

    According to the FTC, the agency would need to hire about 
five new attorneys and investigators to enforce the 
restrictions that would be imposed by H.R. 1701. CBO estimates 
that these new hires would cost about $650,000 a year, subject 
to the availability of appropriated funds.
    The regulations to implement this bill would be written by 
the Federal Reserve. Budgetary effects on the Federal Reserve 
are recorded in the budget as changes in revenues (governmental 
receipts). Based on information from the Federal Reserve, CBO 
estimates that enacting H.R. 1701 would reduce such revenues by 
less than $500,000 a year.
    Because those who violate the provisions of H.R. 1701 could 
be subject to civil and criminal fines, the Federal Government 
might collect additional fines if the bill is enacted. 
Collections of civil and criminal penalties are classified in 
the budget as revenues. Based on information from the FTC, 
however, CBO estimates that any such increase in collections 
would be less than $500,000 per year.
    Collections of criminal fines are deposited in the Crime 
Victims Fund and spent in subsequent years. Because any 
increase in direct spending would equal the amount of fines 
collected (with a lag), the additional direct spending also 
would be negligible.

                      PAY-AS-YOU-GO CONSIDERATIONS

    The Balanced Budget and Emergency Deficit Control Act sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts. Although H.R. 1701 would affect both 
direct spending and receipts, CBO estimates that the net 
effects would be insignificant.

        ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

    H.R. 1701 would annul State laws that are inconsistent with 
Federal regulations for rental-purchase agreements. Merchants 
would be held harmless from liability under the State law in 
question. The bill also would supersede any State law that 
treats a rental-purchase agreement as a form of consumer credit 
or a creation of debt, and States would no longer be able to 
make an independent determination of the nature of the rental-
purchase agreement. Such preemptions would be intergovernmental 
mandates as defined in UMRA. CBO estimates, however, that the 
preemptions would not affect the budgets of State, local, or 
tribal governments because they would impose no duty on States 
that would result in additional spending. Therefore, the 
threshold established by UMRA ($58 million in 2002, adjusted 
annually for inflation) would not be exceeded.

                 ESTIMATED IMPACT ON THE PRIVATE SECTOR

    H.R. 1701 would impose private-sector mandates, as defined 
by UMRA, but CBO estimates that the direct cost of those 
mandates would fall below the annual threshold established by 
UMRA ($115 million in 2002, adjusted annually for inflation).
    The bill would require merchants who provide the use of 
property through a rental-purchase agreement to provide certain 
disclosures to consumers in those agreements and in 
advertisements. Under the bill, such merchants also would be 
required to provide merchandise labeling and to furnish 
statements of account to customers. In addition, the bill would 
prohibit those merchants from charging certain additional fees 
and from entering the premises of customers to reclaim property 
without the customer's permission. Currently, there are 47 
States that require some type of disclosure and labeling for 
such merchants. According to industry representatives, the cost 
for all such merchants to provide the required disclosures and 
adhere to the prohibitions in the bill would be small. 
Therefore, CBO estimates that the direct cost to comply with 
the mandates would fall below the annual threshold established 
by UMRA ($115 million in 2002, adjusted annually for 
inflation).

                         PREVIOUS CBO ESTIMATE

    On July 10, 2002, CBO transmitted a cost estimate for H.R. 
1701 as ordered reported by the House Committee on Financial 
Services on June 27, 2002. The two versions of the bill are 
nearly identical, and the estimated costs are the same. The two 
versions of the bill contain the same mandates and the 
aggregate cost of those mandates fall below the annual 
thresholds established in UMRA.

                         ESTIMATE PREPARED BY:

Federal Spending: Ken Johnson (226-2860)
Impact on the Federal Reserve: Andrew Shaw (226-2680)
Impact on State, Local, and Tribal Governments: Greg Waring 
    (225-3220)
Impact on the Private Sector: Paige Piper/Bach (226-2940)

                         ESTIMATE APPROVED BY:

    Peter H. Fontaine
    Deputy Assistant Director for Budget Analysis

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority for this legislation in article 1, 
section 8, clause 3 (relating to the power to regulate 
interstate commerce); and article 1, section 8, clause 18 
(relating to making all laws necessary and proper for carrying 
into execution powers vested by the Constitution in the 
Government of the United States).

               Section-by-Section Analysis and Discussion

    The following section by section analysis describes the 
sections of H.R. 1701 as reported by the Committee on the 
Judiciary. For an analysis of provisions contained in title X 
not referred to the Committee on the Judiciary, see H. Rept. 
107-590 Part I for analysis.

                 TITLE X--RENTAL PURCHASE TRANSACTIONS

Section 1012. Civil Liability.
    This section adopts civil liability provisions modeled 
after the Truth-in-Lending Act.\2\ Any merchant that fails to 
comply with any requirement of this title, dealing with any 
consumer, is liable to the consumer. Any consumer may bring an 
action in any United States District Court or any other court 
of competent jurisdiction before the end of a 1-year period 
beginning on the date of the last payment made by the consumer 
under the rental-purchase agreement. In addition, this 
subsection is not a bar against a consumer from collecting an 
obligation pursuant to a rental-purchase agreement brought 
after the 1 year period, except as otherwise provided by State 
law.
---------------------------------------------------------------------------
    \2\ Id.
---------------------------------------------------------------------------
Section 1013. Additional Grounds for Civil Liability.
    This section provides that a merchant is liable for price 
tag and advertising violations, if a consumer suffers actual 
damages. In instances where a merchant engages in a pattern or 
practice of price tag or advertising violations, the FTC and 
State Attorney Generals are authorized to enforce sanctions 
against such merchant, including: an order to cease and desist 
from such practices; and civil money penalty of an amount the 
court may impose based on factors the court may determine to be 
appropriate.
Section 1014. Liability of Assignees.
    This section provides that the term ``merchant,'' includes 
an assignee, but limits an assignee's liability to violations 
apparent on the face of a rental-purchase agreement, and 
provides that there is no liability when the assignment is 
involuntary. A violation that is apparent on the face of a 
rental-purchase agreement includes but is not limited to a 
disclosure that can be determined to be incomplete or 
inaccurate from the face of the agreement. A consumer's written 
acknowledgment of receipt of disclosure is conclusive proof 
that disclosure was made even if the assignee has no knowledge 
whether the disclosure was in compliance with this title when 
the assignee acquired the rental-purchase agreement. This 
section does not limit or alter liability established in 
sections 1012 and 1013 of this title.
Section 1016. Enforcement.
    This section provides that the Federal Trade Commission 
(FTC) has enforcement authority and establishes that a 
violation of the act is also a violation of the FTC Act.\3\ It 
also allows State Attorney Generals to enforce the act in State 
or Federal court. State Attorney Generals are required to 
provide prior notice of any civil action pursuant to this 
section to the FTC, which may intervene in such action.
---------------------------------------------------------------------------
    \3\ 15 U.S.C. 41 et seq.
---------------------------------------------------------------------------
Section 1017. Criminal Liability for Willful and Knowing Violation.
    This section provides criminal liability, $5,000 and 1 year 
imprsionment, for willful and knowing violations of the act in 
accordance with other violations of the Consumer Credit 
Protection Act.\4\
---------------------------------------------------------------------------
    \4\ 15 U.S.C. 1601 et seq.
---------------------------------------------------------------------------
Section 1019. Effect on Government Agencies.
    This section provides that no civil liabilities shall arise 
under this act for Federal or State government entities.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported by the Committee on Financial Services, 
are shown in Report 107-590 part 1, filed on July 18, 2002.

    The Committee on the Judiciary adopted an amendment (shown 
at the beginning of this report) to the bill as reported by the 
Committee on Financial Services. Changes in provisions of 
existing law that would result from the amendment and differ 
from the changes that would result from the bill as reported by 
the Committee on Financial Services is shown as follows (new 
matter is printed in italics and existing law in which no 
change is proposed is shown in roman):

             TITLE X OF THE CONSUMER CREDIT PROTECTION ACT

TITLE X--RENTAL-PURCHASE TRANSACTIONS

           *       *       *       *       *       *       *


SEC. 1014. LIABILITY OF ASSIGNEES.

    (a) * * *
    (b) Liabilities of Assignees.--
            (1) * * *
            (2) Apparent violation defined.--For purposes of 
        this subsection, a violation that is apparent on the 
        face of a rental-purchase agreement includes, but is 
        not limited to, a disclosure that can be determined to 
        be incomplete or inaccurate from the face of the 
        agreement.

           *       *       *       *       *       *       *


                           Markup Transcript


                            BUSINESS MEETING

                      THURSDAY, SEPTEMBER 5, 2002

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
Room 2141, Rayburn House Office Building, Hon. F. James 
Sensenbrenner, Jr. [Chairman of the Committee] presiding.
    Chairman Sensenbrenner. The Committee will be in order. The 
Chair notes the presence of a working quorum.
    Let me say, as far as scheduling is concerned today, it is 
the Chair's intention only to bring up H.R. 1701. We have a 
sequential referral that expires on Monday, and we have to 
complete action on H.R. 1701, even if it means coming back 
after the lunch hour to do this.
    It is the Chair's intention also not to take any other 
matters up today, because I am aware of several proposed 
amendments to H.R. 1701.
    So pursuant to notice, I now call up the bill H.R. 1701, 
the ``Consumer Rental Purchase Agreement Act,'' for purposes of 
markup and move its favorable recommendation to the House.
    Mr. Conyers. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from Michigan?
    Mr. Conyers. I have an amendment at the desk.
    Chairman Sensenbrenner. May I make an opening statement? 
And you may make an opening statement.
    Mr. Conyers. Okay. [Laughter.]
    Chairman Sensenbrenner. Okay.
    Without objection, the bill will be considered as read and 
open for amendment at any point.
    [The bill, H.R. 1701, follows:]
    
    
    Chairman Sensenbrenner. And the Chair recognizes himself 
for 5 minutes to explain the bill.
    This bill, the Consumer Rental Purchase Agreement Act, was 
reported by the Committee on Financial Services on July 18. The 
Speaker sequentially referred the bill to this Committee to 
consider several provisions that fall within the Judiciary 
Committee's jurisdiction. This referral expires next Monday, 
September 9.
    H.R. 1701 amends the Consumer Protection Act to provide new 
Federal requirements in all rent-to-own agreements. In a rent-
to-own agreement, the consumer typically leases a product for a 
month and has the option to return the product with no 
obligation or penalty, pay to keep the product for another 
month, or purchase the product. Also, the consumer usually 
acquires ownership of the product if it is leased for a 
specified amount of time, usually 18 months.
    Each year, millions of Americans enter rent-to-own 
agreements because they can't otherwise afford the purchase 
price, qualify for credit, or don't need the product for more 
than a short period of time. While these agreements have grown 
in popularity, they are regulated by numerous State-based 
consumer protection laws. Although a recent survey by the FTC 
staff indicated that 75 percent of rent-to-own consumers were 
satisfied by their experience, that survey identified a number 
of inadequacies in State rental-purchase disclosure laws.
    H.R. 1701 attempts to address these concerns by 
establishing consistent disclosure requirements and substantive 
rights for consumers, which enhance the existing law of some 
States and permits others to adopt or maintain more stringent 
laws. Provisions of the bill within the jurisdiction of this 
Committee include sections 1012, 1013, 1014, 1016, 1017, and 
1019. Although I am not aware of any amendments from our side, 
only these sections will be open for amendment.
    I would point out that it is my intention to vote against 
this bill because I am opposed to the Federal preemption of the 
States' discretion in this area.
    And I yield to the gentleman from Michigan, Mr. Conyers, 
for whatever remarks he wishes to make.
    Mr. Conyers. Thank you, Mr. Chairman and Members of the 
Committee.
    This is a bill that has gone through very important 
changes, and it's almost getting to be acceptable, but it's 
probably not quite there yet.
    The controlling question for some of us is, why do we want 
to tell States how to protect their own consumers? Where are 
the States rights people when we need them?
    Chairman Sensenbrenner. Right here.
    Mr. Conyers. ``Right here,'' says the Chairman. [Laughter.]
    Okay, that's one. And I see one more in the audience.
    But the point is that I know we have a lot of Federal 
jurisdiction to explore, but this is one of the most exotic 
grabs, at the Federal level, that I have heard of lately.
    Now, a word about rent-to-own chains. They are not your 
ideal kind of businesspeople, by and large. I immediately 
exempt the five firms that are good. But the rest of them leave 
a lot to be desired.
    Their rationale for charging more than they ought to is 
that nobody would work in the poor communities if it weren't 
for them, with their right to pick up a little extra money as a 
premium for working in neighborhoods and communities that might 
not have anything at all there. So they would like us to salute 
them for that.
    But they have been sued--$16 million worth of lawsuits in 
Wisconsin, $60 million in New Jersey, $30 million in Minnesota, 
and so on. So consumers need more protection from those who 
engage in predatory financial practices. And I'm hopeful that 
the part of the bill that we have jurisdiction over will serve 
to improve this bill. And I hope that the Committee that has 
the rest of it will do likewise.
    And I ask that my entire statement be inserted in the 
record.
    Chairman Sensenbrenner. Without objection, so ordered.
    Mr. Conyers. I yield back.
    Chairman Sensenbrenner. And without objection, all Members' 
opening statements may be inserted in the record at this point.
    [The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
                 in Congress From the State of Michigan
    Although the version of H.R. 1701 that is before us is an 
improvement over the bill that was introduced, I still have significant 
concerns with the legislation because it ties the hands of States in 
protecting consumers.
    It is ironic that although the Majority professes to respect 
States' Rights, in the area of tort reform and consumer protections, 
the Committee brings up bills that would undermine States' ability to 
perform their traditional duties in these areas.
    As it stands now, H.R. 1701 would preempt States' ability to treat 
rent-to-own contracts as a credit sale, retail installment sale, or any 
other form of consumer credit. This means that the States cannot 
require rent-to-own companies to comply with applicable usury and 
finance charge limits.
    The bill also prevents States from requiring rent-to-own companies 
to disclose a percentage rate calculation or an annual percentage rate, 
or ``APR.''
    The fact is that the bill preempts State laws in Wisconsin, New 
Jersey, Minnesota, North Carolina, and Vermont. The bill also prohibits 
States from adopting similar regimes in the future.
    Why are we telling States how to protect their own consumers?
    Maybe it's because State consumer law violations have produced 
legal judgments or settlements against rent-to-own chains amounting to 
$16 million in Wisconsin, $60 million in New Jersey, and $30 million in 
Minnesota.
    Unable to win under these state laws, or to overturn them at the 
State level, the Majority would like Congress to preempt them.
    It is not surprising, then, that the bill is opposed by every major 
consumer organization.
    Consumers need more--not less--protection from predatory financial 
practices. I cannot support a bill that undermines State pro-consumer 
laws.

    [The prepared statement of Ms. Jackson Lee follows:]
       Prepared Statement of the Honorable Sheila Jackson Lee, a 
           Representative in Congress From the State of Texas
    Today I speak out in opposition to H.R. 1701. This bill does great 
harm to our nation's consumers while protecting the rent-to-own 
industry with weak regulations that are not suited to the true nature 
of the type of transaction these contracts really represent--credit-
sales contracts.
    Once again, we hasten to pass a bill that unfairly places the 
interests of common consumers below the interests of industry and 
business. Unfortunately, there are those in the rent-to-own business 
who create these contracts without providing full disclosure to the 
consumers who use them--consumers who ultimately intend to own the 
television, furniture or other good contemplated in the rent-to-own 
agreement. When these consumers fail to make payment, instead of giving 
them reasonable terms and conditions prolonging the contract, or 
reinstating the contract owners of these contracts often take 
possession of these goods--even after the consumers has made 
significant payments under the contract in excess of the actual cost of 
the goods.
    The measure also raises another issue that Republicans often use as 
a battle cry when they support regulation that oppresses the rights of 
individuals or threatens what they term as undue burdens on business 
and industry. I cannot count the number of times that I have heard 
Republicans raise the issue of states rights arguing that states know 
best and decrying Federal encroachment upon state matters. However, 
when they want to elevate the rights of our nation's industries over 
the rights of individual consumers, states rights goes right out of the 
door. This measure tramples on the decisions of state regulators to 
regulate rent-to- own contracts as credit sales and turns federalism on 
its head. H.R. 1701 would preempt strong state laws regulating rent-to-
own contracts from New Jersey, Minnesota, Wisconsin and Vermont. This 
measure preempts stronger state laws regulating rent-to-own contracts 
and is opposed by 52 state and territorial Attorneys General.
    Consumer advocates oppose this measure. Furthermore, all of the 
government witnesses during the Judiciary Subcommittee on Commercial 
and Administrative Law on this bill, including witnesses representing 
the Wisconsin Attorney General, the Federal Trade Commission and the 
Federal Reserve declined to recommend action on H.R. 1701, further 
making the argument that this is nothing more than a giveaway to the 
industry. Yet, we still see this measure progressing in the House.
    I do not believe at this juncture, in our nation's history, that 
this legislation reflects Congressional concern for a nation with a 
stagnant economy and teetering on the brink of war. At a time when all 
of our nation's citizens are particularly concerned for their well 
being we should not pass legislation that will allow industry to 
capitalize on those citizens with the most exposure to these turbulent 
times. For these reasons I do not support H.R. 1701, and if present, I 
would have voted no.

    Chairman Sensenbrenner. Are there amendments?
    Mr. Conyers. I have an amendment at the desk.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    The Clerk. Amendment to H.R. 1701, offered by Mr. Conyers. 
On page 27, line 16, strike ``includes'' and insert the 
following----
    Mr. Conyers. I ask unanimous consent that the amendment be 
considered as read.
    Chairman Sensenbrenner. Without objection.
    [The amendment follows:]
    
    
    Chairman Sensenbrenner. And the gentleman is recognized for 
5 minutes.
    Mr. Conyers. I thank the Chair.
    This is the most friendly amendment that I could possibly 
put together to offer for this bill. It makes the liability 
provisions of the bill consistent with the Truth in Lending 
Act. Under Truth in Lending, a prerequisite for assigning 
liability is that the violation be apparent on the face of the 
disclosure, but not limited to a disclosure. And in H.R. 1701, 
the definition of ``apparent violation'' leaves out the 
critical terms ``but is not limited to.''
    What this provision does, ladies and gentlemen, is add 
these terms to make the provision consistent with the Truth in 
Lending Act, and it's no more or less than that. And I would 
return any time I have, unless there are any questions from my 
colleagues.
    Chairman Sensenbrenner. The gentleman yields back the 
balance of his time.
    The question is on agreeing to the amendment offered by the 
gentleman from Michigan, Mr. Conyers.
    Those in favor will say aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it, and the 
amendment is agreed to.
    Are there further amendments? There are no further 
amendments. Is there a reporting quorum? Without objection, the 
previous question is ordered on reporting the bill. And the 
Chair would ask Members to stay put, and we will get the 
dragnet out for Members who are absent.
    [Intervening business.]
    Chairman Sensenbrenner. The Chair notes the presence of a 
reporting quorum. The unfinished business is the motion to 
favorably report the bill H.R. 1701 as amended.
    Those in favor will say aye.
    Ms. Waters. Recorded vote, Mr. Chairman.
    Chairman Sensenbrenner. Okay.
    Those opposed, no.
    The ayes appear to have it. A recorded vote is demanded. 
Those in favor of reporting the bill H.R. 1701 favorably as 
amended will, as your names are called, answer aye. Those 
opposed, no. And the clerk will call the role.
    The Clerk. Mr. Hyde?
    Mr. Hyde. Aye.
    The Clerk. Mr. Hyde, aye.
    Mr. Gekas?
    [No response.]
    The Clerk. Mr. Coble?
    Mr. Coble. Aye.
    The Clerk. Mr. Coble, aye.
    Mr. Smith?
    Mr. Smith. No.
    The Clerk. Mr. Smith, no.
    Mr. Gallegly?
    Mr. Gallegly. No.
    The Clerk. Mr. Gallegly, no.
    Mr. Goodlatte?
    [No response.]
    The Clerk. Mr. Chabot?
    Mr. Chabot. Aye.
    The Clerk. Mr. Chabot, aye.
    Mr. Barr?
    [No response.]
    The Clerk. Mr. Jenkins?
    Mr. Jenkins. Aye.
    The Clerk. Mr. Jenkins, aye.
    Mr. Cannon?
    Mr. Cannon. Aye.
    The Clerk. Mr. Cannon, aye.
    Mr. Graham?
    [No response.]
    The Clerk. Mr. Bachus?
    Mr. Bachus. Aye.
    The Clerk. Mr. Bachus, aye.
    Mr. Hostettler?
    Mr. Hostettler. Aye.
    The Clerk. Mr. Hostettler, aye.
    Mr. Green?
    [No response.]
    The Clerk. Mr. Keller?
    Mr. Keller. Aye.
    The Clerk. Mr. Keller, aye.
    Mr. Issa?
    Mr. Issa. Aye.
    The Clerk. Mr. Issa, aye.
    Ms. Hart?
    Ms. Hart. Aye.
    The Clerk. Ms. Hart, aye.
    Mr. Flake?
    [No response.]
    The Clerk. Mr. Pence?
    [No response.]
    The Clerk. Mr. Forbes?
    Mr. Forbes. Aye.
    The Clerk. Mr. Forbes, aye.
    Mr. Conyers?
    Mr. Conyers. No.
    The Clerk. Mr. Conyers, no.
    Mr. Frank?
    Mr. Frank. No.
    The Clerk. Mr. Frank, no.
    Mr. Berman?
    [No response.]
    The Clerk. Mr. Boucher?
    [No response.]
    The Clerk. Mr. Nadler?
    Mr. Nadler. No.
    The Clerk. Mr. Nadler, no.
    Mr. Scott?
    Mr. Scott. No.
    The Clerk. Mr. Scott, no.
    Mr. Watt?
    Mr. Watt. No.
    The Clerk. Mr. Watt, no.
    Ms. Lofgren?
    [No response.]
    The Clerk. Ms. Jackson Lee?
    [No response.]
    The Clerk. Ms. Waters?
    Ms. Waters. No.
    The Clerk. Ms. Waters, no.
    Mr. Meehan?
    [No response.]
    The Clerk. Mr. Delahunt?
    Mr. Delahunt. No.
    The Clerk. Mr. Delahunt, no.
    Mr. Wexler?
    [No response.]
    The Clerk. Ms. Baldwin?
    [No response.]
    The Clerk. Mr. Weiner?
    [No response.]
    The Clerk. Mr. Schiff?
    Mr. Schiff. No.
    The Clerk. Mr. Schiff, no.
    Mr. Chairman?
    Chairman Sensenbrenner. No.
    The Clerk. Mr. Chairman, no.
    Chairman Sensenbrenner. Are there additional Members who 
wish to cast or change their vote?
    The gentleman from Arizona, Mr. Flake?
    Mr. Flake. No.
    The Clerk. Mr. Flake, no.
    Chairman Sensenbrenner. The gentleman from California, Mr. 
Gallegly.
    Mr. Gallegly. How am I recorded?
    The Clerk. Mr. Chairman, Mr. Gallegly is recorded as a no.
    Mr. Gallegly. Aye.
    The Clerk. Mr. Gallegly, aye.
    Chairman Sensenbrenner. The gentleman from Pennsylvania, 
Mr. Gekas.
    Mr. Gekas. Aye.
    The Clerk. Mr. Gekas, aye.
    Chairman Sensenbrenner. Further Members who wish to cast or 
change--the gentleman from Virginia, Mr. Goodlatte.
    Mr. Goodlatte. Aye.
    The Clerk. Mr. Goodlatte, aye.
    Chairman Sensenbrenner. The gentleman from Massachusetts, 
Mr. Meehan.
    Mr. Meehan. Mr. Meehan, no.
    Chairman Sensenbrenner. Any further Members who wish to 
cast or change their votes?
    If not, the clerk will report.
    The Clerk. Mr. Chairman, there are 14 ayes and 12 noes.
    Chairman Sensenbrenner. And the motion to report favorably 
is agreed to.
    Without objection, the bill will be reported favorably to 
the House in the form of a single amendment in the nature of a 
substitute, incorporating the amendments adopted here today.
    Without objection, the Chairman is authorized to move to go 
to conference pursuant to House rules. Without objection, the 
staff is directed to make any technical and conforming changes. 
And all Members will be given 2 days, as provided by the House 
rules, in which to submit additional, dissenting, supplemental, 
or minority views.
    The Chair said as soon as we got rid of H.R. 1701, we would 
postpone consideration of the other items on the agenda until 
the next markup.
    The Committee is adjourned.
    Ms. Waters. Mr. Chairman? Mr. Chairman, unanimous consent 
to place into the record explanation of the opposition to the 
recently passed 1701.
    Chairman Sensenbrenner. Those statements were already 
granted by unanimous consent. Without objection, unanimous 
consent is granted to put any additional statements either by 
Members of the Committee or by outside groups into the record.
    [The prepared statement of the U.S. Public Interest 
Research Group follows:]


    Chairman Sensenbrenner. And the Committee is adjourned.
    [Whereupon, at 10:39 a.m., the Committee was adjourned.]
                            Dissenting Views

    Although the version of H.R. 1701 that the Committee on the 
Judiciary considered is an improvement over the bill that was 
introduced, we still have significant concerns with the 
legislation because it preempts strong State consumer 
protection laws, particularly those of Wisconsin, New Jersey, 
Minnesota, and Vermont.
    It is ironic that although many in the Majority profess to 
respect States' rights, this bill would undermine States' 
ability to perform their traditional functions with respect to 
consumer protection. Although federal regulation is appropriate 
to set minimum standards, we should not prohibit States from 
protecting their own consumers in the manner they see fit. This 
is especially true for the rental-purchase or ``rent-to-own'' 
industry,\1\ whose low-income customer base is most in need of 
protection from usurious costs and unfair practices.
---------------------------------------------------------------------------
    \1\ The two largest, nationwide rent-to-own chains have been 
subject to numerous investigations and lawsuits in the past several 
years. Rent-Way, Inc. has been the subject of both internal and 
external investigations for long-term accounting improprieties that 
substantially understated the company's expenses, reportedly by as much 
as $127 million during one two-year period. Queena Sook Kim, Rent-Way 
Details Improper Bookkeeping, Expenses Were Artificially Cut by $127 
Million, Report Says, Wall St. J., June 8, 2001. Likewise, a number of 
shareholder suits were filed earlier this year against Rent-A-Center, 
Inc., charging the company with making false statements regarding 
quarterly earnings and future prospects that were intended to mislead 
the public and benefit secondary stock offerings by company executives. 
Cauley Geller Bowman & Coates, LLP Announces Class Action Lawsuit 
Against Rent-A-Center Inc. on Behalf of Investors, www.morningstar.com, 
Jan. 30, 2002. Furthermore, Rent-A-Center also recently paid millions 
of dollars to settle class action lawsuit alleging both racial and 
gender discrimination. Rent-A-Center, Inc. Announces Settlement in 
Principle of Gender Litigation, www.yahoo.com, Nov. 1, 2001; Rent-A-
Center Settles Suit Alleging Racial Discrimination, 
www.kansascity.bcentral.com, Oct. 26, 1998.
---------------------------------------------------------------------------
    H.R. 1701 expressly supersedes State laws that treat a 
rent-to-own agreement as a credit sale, and that require the 
disclosure of a percentage rate calculation, time-price 
differential, or an annual percentage rate (``APR'').\2\ As 
such, rent-to-own transactions cannot be subjected to state 
usury laws and finance charge limits, as well as APR and other 
meaningful disclosures.
---------------------------------------------------------------------------
    \2\ H.R. 1701, Sec. 1018.
---------------------------------------------------------------------------
    H.R. 1701 is opposed by 52 Attorneys General, which 
criticized the bill's preemption of State laws that regulate 
rent-to-own transactions as a credit sale or similar 
arrangement or that require the disclosure to consumers of 
effective interest or annual percentage rates.\3\ The National 
Association of Attorneys General wrote, in opposition to H.R. 
1701,
---------------------------------------------------------------------------
    \3\ Letter from National Association of Attorneys General to House 
Committee on Financial Institutions, Subcommittee on Financial 
Institutions and Consumer Credit, Sept. 5, 2001.
---------------------------------------------------------------------------
    ``Consumer protection, including in the area of consumer 
credit, has historically been an appropriate matter for State 
regulation, alone or in concert with federal authorities. Thus, 
a number of federal consumer statutes--including the statute of 
which H.R. 1701 would become a part--expressly exempt from 
preemption State laws that are more protective of consumers 
than related federal standards. [Citations omitted.] This same 
approach should be adopted in connection with H.R. 1701: to set 
a federal ``floor'' for rent-to-own disclosures, but not to bar 
the States from responding to local conditions and concerns 
through the enactment of more protective standards. In that 
way, the goal of protecting consumers can be advanced within a 
federalist framework.\4\''
---------------------------------------------------------------------------
    \4\ Id.
---------------------------------------------------------------------------
    Likewise, H.R. 1701 is opposed by every national consumer 
group and several labor unions, as well as dozens of state and 
local consumer groups. Its opponents include Consumer 
Federation of America, Consumers Union, UAW, United 
Steelworkers, National Consumer Law Center, U.S. PIRG, ACORN, 
National Community Reinvestment Coalition, and Consumer 
Action.\5\ All of these groups oppose the bill's preemption of 
strong State consumer protection laws that treat rent-to-own 
transactions as credit sales and, therefore, require the 
disclosure of the cost of credit and often-exorbitant 100-250% 
APRs.\6\
---------------------------------------------------------------------------
    \5\ Letter from Ed Mierzwinski, Consumer Program Director, U.S. 
PIRG, to Members of House Judiciary Committee, Sept. 5, 2002.
    \6\ Letter from ACORN, et. al. to U.S. Representatives, June 12, 
2002.
---------------------------------------------------------------------------
    Consumers need more--not less--protection from predatory 
financial practices. We cannot support a bill that undermines 
State pro-consumer laws.

                                   John Conyers, Jr.
                                   Barney Frank.
                                   Robert C. Scott.
                                   Sheila Jackson Lee.
                                   Maxine Waters.
                                   William D. Delahunt.
                                   Tammy Baldwin.
                            Dissenting Views

    Regulation of the rent-to-own industry is a ``States 
rights'' issue and should not be preempted by Federal law. 
Virtually every State, with the exception of North Carolina, 
has regulated the rent-to-own industry for decades, and each 
State has developed its own expertise and knowledge of this 
industry through enforcement and internal review. Because there 
is no national need or comprehensive policy concern over how 
the States have regulated this industry, to do so at this time 
would usurp State's authority and undermine the fundamental 
principle of federalism. The only effective way to address this 
conflict would be to grandfather the entire country, except 
North Carolina. This is unnecessary and unwise, and should be 
rejected by every Representative of a State that regulates the 
rent-to-own industry.
    In Wisconsin, H.R. 1701 undermines the Wisconsin Consumer 
Act,\1\ which has successfully regulated the Wisconsin rent-to-
own industry for 29 years by treating rent-to-own transactions 
as credit sales rather than leases. In addition, the 
established law of Minnesota and New Jersey treat rent-to-own 
transactions as credit sales. H.R. 1701 federalizes all rent-
to-own transactions as leases and completely invalidates the 
existing rent-to-own consumer protection laws of Wisconsin, 
Minnesota, and New Jersey because they are based on the premise 
that rent-to-own transactions are credit sales. While the 
Federal Trade Commission staff survey, which is the purported 
basis of H.R. 1701, demonstrates that most rent-to-own 
transactions result in a sale rather than a return, there is no 
finding in this survey supporting a change in Wisconsin, 
Minnesota, or New Jersey law. If H.R. 1701 were enacted, it 
would completely invalidate long standing and successful 
regulation of the rent-to-own industry and require the states 
to take on the enormous task of re-regulating the rent-to-own 
industry.
---------------------------------------------------------------------------
    \1\ Wis. State. chs. 421-427.
---------------------------------------------------------------------------
    H.R. 1701 is a affront to Wisconsin's efforts to regulate 
the rent-to-own industry, which has a pugnacious history in 
Wisconsin politics. The rent-to-own industry has been the 
subject of repeated enforcement actions in Wisconsin and has 
sought State legislation to exempt its transactions from the 
Wisconsin Consumer Act. This proposal was recently vetoed by 
Governor Scott McCallum. Enacting H.R. 1701 would undo Governor 
McCallum's veto and fulfill the goals of the rent-to-own 
industry. I believe regulation of the rent-to-own industry is a 
state matter and H.R. 1701 is a misguided attempt to preempt 
the existing law of virtually every State.

                                   F. James Sensenbrenner, Jr.
                           Supplemental Views

    The Consumer Rental Purchase Agreement Act is special 
interest legislation at its very worst. The bill is falsely 
presented by its industry proponents as pro-consumer and as not 
pre-emptive of state law. Neither is true. The bill has one 
purpose and one purpose only: to circumvent stronger consumer 
protections in the Federal Truth-in-Lending Act and in the 
statutes of a handful of States that the rent-to-own industry 
has not been able to overturn.
    As originally introduced, H.R. 1701 sought to preempt all 
inconsistent State laws. This included all current or future 
State laws that attempt to regulate rent-to-own transactions as 
credit or installment sales, as well as any industry-enacted 
State rent-to-own statutes that provide stronger, but 
inconsistent protections for consumers. Although the amended 
Committee bill has narrowed the scope of the bill's preemption, 
the bill would still preempt the best of the State laws in New 
Jersey, Minnesota, Wisconsin and Vermont that seek to provide 
meaningful protections against unfair predatory practices. And 
it would still prevent these and other states from 
strengthening consumer protections in the future by treating 
rent-to-own transactions as credit sales.
    What is behind this bill? Not a desire to create a 
``Federal floor'' of consumer protections for rent-to-own 
customers, as the majority views allege. It is an effort to 
avoid hundreds of millions of dollars in legal penalties 
imposed by courts in precisely those States whose laws would be 
preempted. Since 1997, legal actions responding to State 
consumer law violations have produced legal judgements or 
settlements against the nation's largest rent-to-own chain, 
Rent-A-Center, Inc., amounting to $30 million in Minnesota, $16 
million in Wisconsin and more than $60 million in New Jersey. 
Unable to win under these State laws, or to overturn them at 
the State level, the rent-to-own industry is simply calling on 
Congress to preempt them.
    All national consumer organizations oppose H.R. 1701 as an 
inadequate standard to protect vulnerable consumers from 
misleading lease arrangements that really mask installment 
sales at exorbitant rates of interest. Consumer advocates 
object to rent-to-own operations as enticing vulnerable 
consumers to acquire electronic equipment, appliances, 
furniture and other household items with promises of no credit 
checks, no qualification and low payments that disguise the 
true cost of the transaction. Most rent-to-own stores encourage 
consumers to focus only on the affordability of the low weekly 
or monthly lease payment and ignore the total cost of actually 
acquiring merchandise over the term of the rental-purchase 
contract.
    Every market comparison done by consumer organizations of 
the cost of acquiring comparable merchandise under rent-to-own 
contracts and alternative credit or installment sales typically 
show the total rent-to-own cost as averaging three to five 
times higher than both the retail price of the merchandise and 
the comparable credit price. This imposes an excessive cost 
burden on low-income families who have no other means of 
acquiring basic household items other than local rent-to-own 
stores.
    Rent-to-own merchants are not the only ones targeting this 
same group of vulnerable consumers. Low-income communities are 
besieged by predatory mortgage companies, payday lenders, check 
cashiers, pawnshops and other quasi-financial companies that 
are all trying to rob the same families of their meager 
dollars. The results have been devastating for struggling 
families and for entire neighborhoods.
    H.R. 1701 does nothing to restrict the exorbitant costs of 
acquiring merchandise under rent-to-own contracts. Moreover, it 
fails to meet the basic standard for full cost disclosure under 
the Truth-in-Lending Act by preventing consumers from using 
annual percentage rate (APR) calculations or other common 
market measures of total costs to compare the total cost of 
rent-to-own transactions with alternative credit and 
installment sales options.
    The Consumer Rental Purchase Agreement Act should be 
defeated for several important reasons. It contradicts all 
arguments of States' rights and denies States the opportunity 
to regulation commercial transactions as they think best. It 
promotes and encourages business transactions that target and 
prey upon our most vulnerable citizens. And, it seeks to impose 
an industry-approved standard of consumer protection in place 
of long-established principles of Federal and State laws that 
have proven effective over four decades.

                                   Maxine Waters.

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