New York Amends Rental-Purchase Disclosure Law; New Jersey May Be Next

New York Governor David Paterson has signed legislation (A.3083) designed to increase consumer protections through enhanced contract disclosures and new price-setting guidelines. The new law, which becomes effective on January 31, 2011, amends a law that had been in place since 1986.

Among the changes made by the new law:

 A customer now has one full year to reinstate a rental-purchase contract if the instrument is voluntarily returned.

 The following items must be disclosed in at least 10-point bold face type and grouped together in a box just above the customer’s signature: the cash price of the merchandise, the amount of each payment, the number of payments necessary to acquire ownership, the total of payments and the cost of rental (i.e., the difference between the cash price and the total of payments). In addition some of the terms require mandated explanatory language.

 The dealer may not charge a separate fee for instrument maintenance.

 A customer may receive reduced rental payment if he or she can demonstrate loss of job.

 A maximum cash price (i.e., the price which the merchandise can be purchased for cash) of two times the instrument’s cost is established, and maximum cash prices are established for used instruments.

 If the cash price calculation is wrong, the law provides that the contract is void, the customer can keep the merchandise and the dealer must refund all payments.

The New York Attorney General is authorized to issue regulations implementing the law, but the measure makes clear that no regulation can seek to characterize a value rental-purchase transaction as a consumer credit sale.

The new law, like the existing law it amends, is applicable to rentals with an initial obligation period of four months or less, which allows the customer to become the owner of the instrument. Rentals without a purchase option (i.e., rent-to-rent transactions) are not covered, while rentals with an initial rental obligation period of five months or more, whether or not purchase option is involved, are governed by the federal Consumer Leasing Act, which requires a different set of disclosures.

The strict new law is primarily aimed at household products rental companies which rent appliances and future primarily to lower-income customers who have a difficult time obtaining normal credit. While musical instrument retailers are not targeted by the new law, they are obviously affected.

Rent-to-own industry sources report that the next state which might see some legislative action is neighboring New Jersey, which is one of only three states without a specific rental-purchase disclosure law and where courts have held that traditional rental-purchase transactions must be treated as credit sales under state law.