A bill to create a new consumer watchdog agency, which cleared a key committee in Congress this week, will be closely watched by Aaron's Inc., the Atlanta-based rent-to-own chain.
The proposed new Consumer Financial Protection Agency is backed by President Barack Obama, Democrats and public interest groups, but opposed by some industries, regulators and Republicans.
The bill doesn't target the rent-to-own industry. But Aaron's and its trade association fear it could include language changing the way they do business, if not threatening to end the practice of renting-to-own all together.
Richard May, public affairs director at Austin, Texas-based Association of Progressive Rental Organizations,
said last year's financial collapse created a pro-consumer push on Capitol Hill.
On the one hand, he said, that puts his industry in a positive light as a viable way to get furniture without credit. On the other, he said, "Any industry that deals with consumers is in the crosshairs."
The consumer agency bill is targeted at Wall Street, mortgage and credit card companies, he said, but he's afraid rent-to-own chains will "be sucked in."
"When we get the final language, we can see what affect it might have," he said.
At the same time, the rent-to-own industry is pushing two bills: HR 1744 and S 738. The bills have been introduced in some form for about 14 years, said May, and if passed would create a federal definition of "rent-to-own" and payment plans.
The bills would prevent the industry from being regulated in the category of credit card purchases. If that were to happen, said May, it would limit the amount of interest they can charge, and possible force them to return to a rental-only business model, .
"The truth of the matter is customers have to pay more because they are higher risk customers because they don't qualify for credit," said Gil Danielson, Aaron's chief financial officer. "In most cases, they wouldn't get the product because they don't have the credit to get it."
He said though the company makes a "pretty good profit" of about 10 percent, "our customer demands a lot service. If he doesn't pay on time and he doesn't return the merchandise, you have to make house calls to get payment or the items back."
But rent-to-own has drawn fire for high interest rates. One of the industry's critics, U.S. Public Interest Research Group, opposes the two bills the rent-to-own industry backs. The group calls the industry "predatory" and says the “'rentals' are actually high-interest loans, chiseling unwitting consumers with interest rates of up to 230 percent." They say the bills would "preempt, or override, these strong state consumer protections."
May, however, said the bills would increase protections in 33 states. The House version has more than 100 sponsors, including eight Georgia representative. Both Georgia senators co-sponsored the Senate version.
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