Rent-to-own News - New York enacts nation's strictest RTO law, again

New York Gov. David A. Paterson Friday, signed into law a stringent rent to own bill that will increase consumer protections through enhanced contract disclosures and new price setting guidelines.

The new law, described by APRO Legal Counsel Ed Winn III as the "the strictest rent to own law in the country", mandates more information be given to customers up front, in a clear and very visible format, and also defines for the first time how the base prices are set.

"The new law pulls enactments from several other states, and so regulatory item by regulatory item, there is not much that is really new in the law," Winn said. 'It is, rather, the first time that all of the restrictions on rental dealers are appearing in one state."

In 1986, New York enacted what was, at the time, the strictest RTO statute in the country

The language of the bill indicates New York lawmakers find rent-to-own stores “provide a unique transaction that is popular with many consumers,” enabling them to “obtain high-quality goods.” What was needed, according to the text of the bill, was “appropriate regulatory guidance” about how to set cash prices at “fair and reasonable levels,” and “clear and useful disclosures” so consumers can “make informed decisions.”

Central to the new law is its establishment of a framework for setting the prices, not only for the first rental of each item, but on subsequent rentals when the item is considered “used.” The bill bases pricing on the merchant’s documented cost for each item — what the merchant paid the manufacturer — and sets the cash price as a multiple of that.

Dave Edwards, rental dealer and president of the New York State Rental Dealers Association, said the law's combination of consumer protections and new price setting criteria was a positive outcome for the industry.

"What it does for the industry is it reaffirms the legitimacy of our transaction in the state of New York," Edwards said. "We have severe critics in our state. But this gives us the chance to build long term positive relationships with legislators. It gives us a good foundation to build on."

A more thorough analysis of the new law can be found in the next issue of RTOHQ: The Magazine.

Meanwhile, here are some highlights:

• The law has set cash prices in rental stores by imposing a multiplier of the dealer’s wholesale cost. The range is from 1.75 times cost for some electronics and appliances to 2.10 time cost for furniture. Dealers need not calculate rebates, discounts, or the like unless they are both “vested and calculable.”

• The new law then sets maximum RTO prices at 2.25 times the retail price. The total allowable turn under the new law ranges from 3.38 times cost to 4.73 times cost for new product. Then, there is a matrix for pricing used property. Dealers must categorize all used product into one of four categories:  excellent, good, fair, or poor.  Based upon the quality of the product, dealers then must lower both the cash price and the RTO price by a certain amount based upon how long the product has been out on rent. 

• The early purchase option is set by statute at cash price times the number of payments remaining divided by the total number of payments called for in the agreement. Notably, the statute provides that the customer must affirmatively elect to exercise an early purchase option, and, further, the purchase option price must always be equal to at least one periodic payment.

• Receipts must have the early purchase option amount listed as well at the total RTO price. The statute requires disclosure of the “Cost of Rental,” the difference between the cash price and the total RTO price of the product. Dealers must give customers written notice of their reinstatement rights, if applicable, when they pick up property or when customers return it. 

• The statute requires certain disclosures to be “boxed,” like Truth In Lending credit disclosures and like RTO disclosures in California. There is an income interruption provision, similar to provisions in California and Pennsylvania, allowing customers to reduce rental payments if they lose their jobs or suffer reductions in income under certain circumstances. The law requires dealers to maintain the rental property during the agreement with a requirement that dealers either repair the unit within two business days or, by law, furnish customers with a loaner.

• The statute outlaws mandatory arbitration in RTO agreements. The statute gives the attorney general the authority to promulgate additional regulations concerning RTO transactions in the state in keeping with the new statute.

The New York statute can be downloaded here.