Rent-to-Own

Introduction

A significant number of consumers cannot afford to purchase outright certain consumer goods, such as furniture, major appliances, or home electronics, and are unable to obtain credit for such purchases.  This has given rise to the so-called "rent-to-own" (RTO) industry where merchants, often targeting low income consumers, rent merchandise to consumers, who may then ultimately acquire the item by making periodic rental payments for a specified period of time. Alternatively, consumers may acquire the item by opting for the early purchase option, and making  a specified lump some payment during the term of the rental.  RTO transactions afford consumers immediate access to common household goods, typically without any down payment or credit check.  However, consumers who enter into RTO transactions end up spending much more to acquire the item than if they had just purchased, or even financed under prevailing rates, the item initially. 

As a result of identified abuses by RTO merchants, amendments to existing legislation governing the industry were enacted (effective 1/26/2011) in an attempt to strengthen consumer protections.  These protections include restrictions on the prices that may be charged by RTO merchants and requirements to inform consumers of key information about RTO transactions.  The statute's full text may be found at :Laws Of New York-Personal Property Law.    

Highlights of Law

Consumers must execute a written rental-purchase agreement to enter into an RTO transaction.  Merchandise covered by RTO transactions must be used for primarily personal, family or household purposes, and the rental period must be, initially, for no more than four months. 

Pricing Restrictions

The statute sets specific limits on what RTO merchants can charge for new and used merchandise.  A number of terms are defined in the statute.  The "cash price" means the price the consumer may pay to acquire the merchandise at the beginning of the rental-purchase agreement.  The "cash price" is limited by law, depending upon the type of merchandise (e.g. furniture, appliances, home electronics, jewelry, etc.), and may equal a multiple of the "merchant's cost," which is defined as the merchant's documented actual cost.  The "total of payments" is the total amount of periodic payments that the consumer must make during the term of the rental-purchase agreement to acquire the merchandise.  The "total of payments" is set by law at no more than 2.25x the cash price. 

For example, if the merchant's documented actual cost for a television is $300, the merchant may charge no more than 2x the actual cost, or $600, as the cash price.   In this example, the total of payments under the rental-purchase agreement may not exceed $1,350.  As this example demonstrates, the total the consumer must pay to acquire the television under the rental-purchase agreement far exceeds the amount the consumer would need to pay to purchase the television initially.  This additional cost is referred to as the "cost of rental."

In addition, the consumer has the right to exercise an early purchase option and acquire the merchandise before the term of the rental-purchase agreement expires.  The consumer may do this by making all past due payments, and paying a percentage of the "cash price," which is calculated based on the remaining number of payments left under the rental-purchase agreement.  Merchants are required to include in the receipt for each periodic payment a statement indicating the total amount the consumer would need to pay to exercise his or her early purchase option at that time.

The maximum "cash price" and the "total of payments" for used merchandise will be lower than for new merchandise.  The number of payments required is determined by a matrix set forth in the statute, which takes into account: (a) the condition of the merchandise at the time of the RTO transaction (i.e., excellent, good, fair, or poor); and (b) the length of the rental term if the merchandise had been new (i.e., 34 weeks or less, 35-38 weeks, 39-90 weeks, or 91 weeks or more).  The matrix in the statute follows:

 

TERMING MATRIX FOR USED MERCHANDISE

Original Term in weeks when New

34 weeks or less 35 - 38 weeks 39 - 90 weeks 91 weeks or more

EXCELLENT  CONDITION

subtract a minimum of 1 week from original term

subtract a minimum of 2 weeks from original term

subtract a minimum of 3 weeks from original term

subtract a minimum of 4 weeks from original term

GOOD  CONDITION

subtract a minimum of 3 weeks from original term

subtract a minimum of 5 weeks from original term

subtract a minimum of 7 weeks from original term

subtract a minimum of 9 weeks from original term

FAIR  CONDITION

subtract a minimum of 4 weeks from original term

subtract a minimum of 7 weeks from original term

subtract a minimum of 10 weeks from original term

subtract a minimum of 13 weeks from original term

POOR  CONDITION

subtract a minimum of 6 weeks from original term

subtract a minimum of 10 weeks from original term

subtract a minimum of 15 weeks from original term

subtract a minimum of 20 weeks from original term

New = Full Term
Excellent = In great shape.  Refurbished to look like new.
Good = In good working order.  Refurbished, but imperfections still exist.
Fair = Completely operational, but refurbishment has not concealed obvious wear and tear.
Poor = Ripped, faded, cracked or broken and refurbishment did not change it.

Required Disclosures
Among other provisions, the rental-purchase agreement must provide: (1) the names, address and telephone number of the merchant; (2) a description of the merchandise including whether it is new or used; (3) the duration of the rental term and the minimum period for which the consumer is obligated; (4) the amount of each periodic payment, the total of payments and the total number of payments needed to acquire ownership; (5) the cash price and the cost of rental; (6) the amount and purpose of any additional fees; (7) the liability of the consumer for the loss or damage to the merchandise; (8) a statement that ownership does not transfer to the consumer until all payments are made or the consumer exercises the early payment option, which shall be accompanied by a chart indicating the amounts required to exercise the early payment option after each periodic payment; (9) a statement of the right of repossession by the merchant for failure to make a payment and a description of the consumer's right to reinstatement upon payment of balance owed; (10) a description of the consumer's right to lower periodic payments under specified conditions; (11) a description of the merchant's obligation to maintain the merchandise and the warranty coverage for such merchandise; (12) a statement that the consumer is entitled to review a fully completed rental-purchase agreement for up to 48 hours prior to signing and that the consumer must be given a fully completed copy of the signed agreement; and (13) a statement that the consumer may cancel without penalty, if the consumer has not yet taken possession of the merchandise.

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