House OKs rent-to-own, lawsuit loan restrictions by large margin

[T]he House voted overwhelmingly Thursday to regulate the rent-to-own industry and temporarily ban lawsuit loan companies from operating in Vermont.

If signed into law, Vermont would be the 14th state to set price caps on companies that rent furniture and home appliances. Vermont would also be the first state to put an indefinite moratorium on lawsuit lending deals, also known as settlement loans.

Lawmakers in the House voted 131-13 to amend S.73, and gave the so-called rent-to-own bill preliminary approval on a voice vote. Third reading is scheduled for Friday morning, and the House will rename it the “consumer protection” bill.

The Senate would still have to approve changes or call for a committee of conference. The Senate’s bill originally sought to rein in rent-to-own dealers like Aaron’s and Rent-A-Center, who charge high fees and sometimes threaten to take low-income Vermonters to court to repossess furniture when they can’t pay.

The House Committee on Commerce and Economic Development then added items that would establish a financial literacy commission, require companies to give consumers clear information regarding online dating scams, home security system billing, telemarketing scams and data breaches, among other things.

S.73 has minimal opposition, even from the industries the bill would regulate. Rep. Corey Parent, R-St. Albans, said last week he could not support the price-setting measures in the proposed rent-to-own regulations.

200 percent of cost

In the version passed Thursday, Vermont would cap the amount a rent-to-own dealer can charge customers at around twice the retail price for each item and require companies to disclose interest rates in normal-sized print.

“Capping the price a business can charge to twice what the business paid for an item sets a bad precedent for our rural Vermont businesses trying to compete,” Rep. Janssen Willhoit, R-St. Johnsbury, said in explaining his no vote.

Rep. Bill Botzow, D-Bennington, chair of House Commerce, said the panel used existing laws capping the amount retailers can charge for wheelchairs as a baseline when drafting the bill.

Appliances and certain electronics would be capped at 175 percent of the merchant’s cost; furniture and jewelry would be capped at 250 percent of the merchant’s cost; and all other items would be capped at 200 percent of cost.

Merchants must discount the “cash price” of used merchandise by at least 10 percent, and customers must be able to pay off the rental price to acquire ownership. The merchants would be required to advertise the total number of payments necessary to own the item.

Companies could not garnish a person’s wages for not paying off their rent-to-own bill or require customers to enter binding arbitration. Companies would need to follow advertising disclosure provisions and keep records of their advertisements.

Chris Curtis, an attorney for Vermont Legal Aid, called the bill “a big win for consumers” that gives them “a fair deal over a fast buck.” He rejected the idea that the rent-to-own price caps tread on the free market.

“I don’t think this is a new thing,” Curtis said. “I think the state of Vermont already regulates many industries, and there’s no reason to treat one industry different from the others.”

Moratorium on settlement loans

The House Commerce Committee took testimony from the Commissioner of Financial Regulation, the American Legal Finance Association and other stakeholders regarding so-called settlement loan companies.

Lending companies offer cash advances to plaintiffs involved in personal injury cases, civil rights cases or multimillion-dollar divorces. Plaintiffs only have to pay the money back if they win their case, so companies usually make low-risk deals.

To date, the House Commerce Committee is only aware of one Vermonter who has used these companies, and the Department of Financial Regulation is unaware of lawsuit loan companies operating in Vermont.

But the New York City Bar Association calls companies such as 1-800-LAW-CASH and 1-877-377-SUIT part of a $1 billion industry. Lawmakers say they heard enough bad news during testimony that they wanted to find out more.

S.73 would direct DFR Commissioner Susan Donegan to submit a report by Dec. 1 that strikes “an appropriate balance” between protecting Vermonters from predatory practices and protecting their right to contract with consumer litigation financing companies.

An indefinite moratorium would go into effect July 1; no one in Vermont could “offer or enter into a consumer litigation funding contract” until the Legislature passes a new law to lift the ban.

Rep. Steve Carr, D-Brandon, shared documents with VTDigger that show an agreement between a customer and a settlement loan company from September 2014. (The customer and company’s names are redacted.)

The contract gives the person $5,000 up front, using the settlement as equity, and requires the litigant to pay back at least $7,500 if she pays within six months.

Over the contract term, that payback amount increases by $1,250 every six months, meaning that the litigant ends up paying an interest rate between 58 percent and 149 percent per year in the first five years.

“I think we, seeing these numbers, were affected enough so that we thought we wanted to stop it while we thought about it,” Carr said. “What we want to do is do it next year, in the second half of the biennium.”

Jack Kelly, managing director of the American Legal Finance Association, said in a phone interview that the industry should be regulated, but consumers should still have a choice.

Kelly said six states regulate the industry: Iowa, Maine, Nebraska, New York, Ohio and Tennessee. He said most states require a list of disclosures, and Vermont should know who is operating in the state, too.

“I think it would’ve been more prudent to put an expiration date on the moratorium,” Kelley said. “I would’ve had the [Commissioner of Financial Regulation’s] report done at the end of the year and then acted.”