Rent-to-own News - New Consumer Protection Agency could impact RTO bills

The Obama administration yesterday sent a detailed proposal to Congress to create an agency to protect consumers and oversee nearly every facet of consumer lending.

Though the bill, and the agency it proposes to establish – The Consumer Financial Protection Agency – does not name rent-to-own directly and is focused on abusive mortgage and credit card lending practices that led to the current financial crisis, the "ripple effect" of the bill could color attitudes about pending RTO legislation and the industry in general.

Administration officials propose the new regulator have a broad mandate to cover the spectrum of consumer financial products and to fill gaps in current regulations.

The new agency, with it's sweeping regulatory power, could be a double edged sword for the rent-to-own industry, according to Ed Winn III, legal counsel for the Association of Progressive Rental Organizations.

"One would hope the renewed interest in consumer protections would lead Congress to take a closer look at our pending rent-to-own bills," Winn said. "And that could be a good thing. The other side of that is it could just be regulation run amok and they could ignore our pending bills and roll us in as a credit sale. It's still to early to tell."

APRO Legal Counsel Ed Winn III.

The new agency proposal has already earned support from Congress' top financial services and banking industry lawmakers, House Financial Services Committee Chair Barney Frank, and Senate Banking Committee Chair Chris Dodd. Both Frank's and Dodd's committees also have jurisdiction over pending rent-to-own legislation in both the House and Senate.

But the bill is already meeting stiff resistance from the banking industry which is hoping to win over the few undecided lawmakers who will be critical in deciding which details will be included in the final bill. Industry groups say they are forming a coalition to persuade members of Congress to scale back the bill, according to the Washington Post.

"I think when people read this, they will be shocked about the incredibly broad delegation of power," Edward L. Yingling, chief executive of the American Bankers Association, told the Post. "It basically can do almost anything it wants. . . . I think there will be opposition simply on the breadth of it, on the balance of power between Congress and an agency."

But the notion of protecting consumers will be difficult to separate from a bill some see as over-reaching and too restrictive. This may make the bill difficult for lawmakers to oppose, according to some D.C. analysts, and the prevailing winds of more regulatory oversight will likely carry the day.

A U.S. Treasury Department spokesperson said the bill represents a return to more significant regulation of a sector that had lost much federal oversight in recent years.

Rep. Frank said he aims to approve the committee's version of the bill before Congress's summer recess begins on Aug. 3.

"The federal regulatory system has clearly failed to provide adequate protection for consumers and that failure contributed to the broader economic crisis," Frank told the Post. "That is why I have made the creation of the agency one of our highest priorities."

However, Frank will face Republican opposition on the bill from Congress members who argue American consumers are best suited to make their own financial decisions. Rep. Spencer Bachus (R-Ala.),  the ranking member of the Financial Services Committee, said the best way to protect consumers is not through the creation of another bureaucracy but by consolidating the regulatory system and holding regulators accountable.

Some consumer groups said the bill does not go far enough.

The Consumer Financial Protection Agency would be run by a presidentially-appointed, five-member board and wield subpoena power and wide-ranging investigative power.

Currently rent-to-own legislation -- the Consumer Rental Purchase Agreement Act -- which would define the RTO transaction as a lease and provide a range of consumer protections as well, enjoys bipartisan support with 97 House co-sponsors and 14 Senate co-sponsors.

The House version of the bill -- H.R. 1744 -- was referred to the Financial Services Committee on March 26 and the Senate version of the bill -- S. 738 -- was referred to the Senate Banking Committee on March 30.

mevans@rtohq.org