The New Rent-to-Own: More Confusing, Still Expensive, and Offered

The New

Rent-to-Own:

More Confusing,

Still Expensive,

and Offered at

an NYC Store

Near You

The New Rent-to-Own: More Confusing, Still Expensive, and Offered at an NYC Store Near You

Bill de Blasio

Mayor

Lorelei Salas

Commissioner

Acknowledgments

This report was prepared by Glenna Goldis, Senior Staff Counsel, of the General Counsel Division, which is led by

General Counsel Tamala Boyd and Deputy General Counsel Michael Tiger. Special thanks to project contributors:

Nicole Arrindell, formerly Associate General Counsel; Daniel DuBois, Staff Counsel; Lena Kasen, Legal Staff

Associate; and Chuck Kress, formerly Senior Legal Staff Associate.

The Department of Consumer and Worker Protection (DCWP) also acknowledges the following staff members

for their contributions: Zayne Abdessalam, Director of Policy and Research, Office of Financial Empowerment;

David Cho, Program Analyst; Debra Halpin, Assistant Commissioner for Creative Services; Abigail Lootens, Associate

Commissioner of Communications & Marketing; Karla Morey, Staff Counsel; Ulrike Nischan, Senior Research Analyst,

Office of Financial Empowerment; Kwame Simpson, Legal Technology Coordinator; and Samuel Wylde, formerly

Policy Analyst, Office of Financial Empowerment.

Author Note

While No Credit Needed (NCN) companies operate nationally, their contracts are specific to the states in which

they operate. This report focuses on New York law and New York City retailers and consumers. Readers from other

jurisdictions should consult their state laws when evaluating the virtual Lease-To-Own (LTO) industry in their areas.

Acronyms

ACH Automated Clearing House

APR Annual Percentage Rate

BBB Better Business Bureau

CEO Chief Executive Officer

CFO Chief Financial Officer

CPL Consumer Protection Law

DCWP Department of Consumer and Worker Protection

EPO Early Purchase Option

FTC Federal Trade Commission

GBL General Business Law

LLC Limited Liability Company

LTO Lease-To-Own

NCN No Credit Needed

OAG Office of the Attorney General

PPL Personal Property Law

RAC Rent-A-Center

RIC Retail Installment Contract

TILA Truth In Lending Act

Report Terminology

DCWP uses the terms lease and rent interchangeably. While some commentators, businesses, and advocates

prefer one or the other, no distinction exists under New York State law.

This report focuses on Lease-To-Own (LTO) only; that is, agreements that automatically lead to ownership. It does

not discuss other forms of consumer leasing.

DCWP refers to virtual LTO agreements as financing because this broad term captures how consumers experience

the service—as a method of payment using borrowed funds.

Table of Contents

Message from Commissioner Lorelei Salas 7

Introduction 9

The Virtual Lease-To-Own Industry 10

The Virtual LTO Transaction – In Theory… 12

The Virtual LTO Transaction – In Reality… 13

The Virtual LTO Retailer 26

Potential Litigation and Law Enforcement 29

Recommendations 31

Conclusion 32

Endnotes 34

Message from

Commissioner Lorelei Salas

“Buy now, pay later.”

Long before the COVID-19 pandemic devastated economies and left already vulnerable

consumers in even more precarious situations, the promise of “buy now, pay later” lured

too many consumers into agreements they did not understand and payment amounts

they could not afford. Known in the industry as “virtual lease to own,” these agreements

are promoted by brick-and-mortar businesses, like furniture stores, but the debt is owned

by third-party financing companies—usually unbeknownst to the consumer. Complaints

about the behavior of the retailers and the deceptive and predatory nature of the

agreements led the Department of Consumer and Worker Protection to take a closer look

at the agreements, the retailers, and the third-party financing companies that form the

crux of the virtual lease-to-own arrangement. This report is the result.

Although our report focuses on brick-and-mortar businesses, lease to own has been

identified as the fastest growing e-commerce payment method—an alarming development

since, as a result of the pandemic, people are shopping online now more than ever, and

many of those people are having difficulty financially.

This report details DCWP’s findings about the industry, offers recommendations for

potential enforcement actions, and suggests ways to strengthen regulatory oversight.

Protecting consumers is part of our mission, and that mission has renewed importance

during economically precarious times.

Sincerely,

Lorelei Salas

Commissioner

Introduction

Imagine that you need a couch and a bed for your apartment, but you do not have

the money to buy them. You walk by a furniture store and see a “no credit needed”

advertisement in the window. Inside the store, you find a couch and bed that you want.

While the price seems high, you need the furniture. When you ask the sales representative

about the ad in the window, he ushers you to a computer to complete an “easy” financing

application. Believing it is like a credit card application, you enter your bank account details

and Social Security number. The screen says you are “approved.” The sales representative

enters more information and tells you how much your weekly payment will be. You sign the

screen by typing your name. You feel relieved that you managed to purchase furniture so

easily and affordably.

In this scenario, you did not actually buy the bed and couch. Rather, when you e-signed the

financing application, you agreed to lease the couch and bed from a virtual lease-to-own

(LTO) company, which just bought the furniture from the store. If you keep the furniture

long enough and make all required payments, you will, eventually, own it, but at what cost?

After one year, it is likely you will have paid the virtual LTO company more than double the

price—the equivalent of an annual percentage rate (APR) of over 100%.

The stakes are high when it comes to no credit needed (NCN) companies that offer virtual

LTO agreements. And it is not just furniture. Consumers who lease eyeglasses, electronics,

and jewelry often pay hundreds, sometimes thousands, in leasing charges without ever

understanding the leases they signed. Consumers report—and an investigation by the

Department of Consumer and Worker Protection (DCWP) confirms—that retailers deceived

them about leases, rushed them through the application process, and then stonewalled

them when they asked to reverse the transaction. Some consumers claimed that retailers

forged their e-signatures.

In New York City, consumers of color are disproportionately affected by these business

practices as retailers offering LTO agreements are concentrated in Black and Hispanic

neighborhoods.

Despite the evidence that virtual LTO agreements are overpriced, underexplained vehicles

responsible for driving already financially vulnerable people further into debt, NCN companies

have largely escaped regulatory scrutiny. And NCN companies have turned a blind eye to

the misinformation peddled by their retailers.

In this report, DCWP:

 Provides an overview of the virtual LTO industry in New York City, drawing

from investigations into five major NCN companies that generate complaints

in New York City.

 Details the consumer experience with virtual LTO agreements, including

key lease features and the retailer’s role.

 Identifies potential causes of action against NCN companies and retailers.

 Recommends policy reforms to stop consumer abuse, with the goal of

dismantling the incentive structures for NCN companies and retailers to

harm consumers.

As part of our investigation, we used audio recordings and subpoenaed documents, as well

as consumer interviews, public filings, and DCWP undercover operations.

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3. Progressive Leasing (Progressive)

Founded in 1999, Progressive is currently owned by Aaron’s, Inc., a

traditional LTO retailer.

Progressive partners with New York City retailers at

several hundred locations and, in 2019, launched partnerships with U.S.

Best Buy Co., Inc. (Best Buy)

and Lowe’s Companies, Inc.

Progressive

reported an annual revenue of approximately $2billion in 2018.

Best Buy

employees have expressed antipathy toward Progressive, referring to it as

“regressive leasing” and stating that, “[i]t feels abusive and gross.”

In 2020,

the Federal Trade Commission (FTC) charged Progressive with systematically

deceiving consumers about the cost of leasing.

The parties settled the

matter for $175 million—one of the largest settlements in FTC history.

4. SmartPay Leasing LLC (SmartPay)

Founded in 2009, SmartPay is currently owned by Tempoe, LLC. SmartPay

partners with cell phone stores, with the bulk of its New York City business

stemming from partnerships with several hundred Metro by T-Mobile

retailers. These retailers are either owned by or partner with MetroPCS

New York, LLC, a subsidiary of T-Mobile USA, Inc. In 2019, DCWP sued

T-Mobile for systematically deceiving consumers at these stores, including

by misleading them about SmartPay leases.

5. Snap Finance (Snap)

Founded in 2011, Snap is a privately held, privately funded company.

In 2017, Snap announced a partnership with BMO Harris Bank to service

more than $1billion in LTO financing agreements.

Snap partners with

New York City retailers at several hundred locations, including several auto

repair shops.

The Virtual Lease-To-Own Industry

In a traditional, brick-and-mortar LTO transaction, the consumer selects merchandise from

a retailer and the retailer leases that merchandise directly to the consumer. The parties

establish a payment schedule at the outset and, after a certain number of payments, the

consumer automatically owns the merchandise and the charges cease.

In a “virtual” LTO transaction, the consumer selects merchandise from a retailer, but a

third-party financing company—NCN company—purchases the merchandise from the

retailer, then leases it to the consumer.

By partnering with retailers in this way, NCN companies can lease a wide range of

merchandise without having to stock inventory themselves. Products leased by NCN

companies span the retail spectrum: phones, furniture, eyeglasses, appliances, jewelry,

even auto repair. Some retailers are major chains, like Best Buy and T-Mobile; others

appear to be small local businesses. The smaller retailers often partner with multiple NCN

companies. Some retailers have solid reputations and business practices, while others

generate numerous complaints.

LTO agreements are governed by state law. In New York, it is Personal Property Law (PPL)

§§ 500-508 (or Article11), enforced by the New York State Office of the Attorney General

(OAG).

NCN Companies

Over the last five years, NCN companies have received millions in investment dollars and

made billions in revenue a year. In New York City, between 2017 and early 2020, five NCN

companies in particular entered into over 200,000 leases with New York City consumers

and offered leases at over 2,000 New York City storefronts. These companies are the

focus of this report and include:

1. Acceptance Now

Founded in 2005, Acceptance Now is currently owned by Rent-A-Center,

Inc. (RAC), a traditional, brick-and-mortar LTO retailer. Although RAC has

financed and leased its own merchandise, its Chief Executive Officer (CEO)

publicly stated that its “big growth vehicle certainly is virtual…”

Acceptance

Now partners with major furniture retailers and, as of 2019, had generated

approximately $173.1million in revenue.

In 2020, RAC put all of its leasing

options, including Acceptance Now, under the umbrella of “Preferred Lease,”

which generated approximately $750million in revenue.

2. Acima Credit (Acima)

Formerly known as Simple Finance, Acima is a privately held, private

equity-backed company founded in 2013. In 2019, it received $125 million

in private equity funds from Comvest Credit Partners.

Acima partners with

Cohen’s Fashion Optical and many small retailers, amounting to over 800

active locations in New York City.

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The Virtual LTO Transaction

– In Reality...

A review of NCN company records and consumer complaints show that consumers who

enter virtual LTO transactions are often targeted, taken advantage of, and tricked.

NCN Companies Target Certain Consumers

In New York City, LTO retailers are heavily concentrated in neighborhoods populated by

people of color. See Figure1. The yellow outline indicates a supermajority, meaning more

than 70% of the residents in the area identify as “Black” or “Hispanic/Latino.”

Figure 1: Map of New York City

Neighborhood Composition

Supermajority (>70%) Black and Hispanic/Latino

Retailers Per 10K Residents

0.5 - 1.9

>1.9 - 2.9

>2.9 - 4.2

>4.2 - 9.1

As the map illustrates, the number of LTO retailers per resident is highest in supermajority

neighborhoods.

If NCN companies are to be believed, this is not targeting; rather, it is

an effort to provide financing options to those who are financially marginalized, including

those with “less than perfect credit” or those who are “credit challenged.”

The Virtual LTO Transaction

– In Theory…

According to NCN companies, virtual LTO agreements are a veritable dream come true,

especially for individuals with bad credit or no credit. Often touted as fast, flexible, and

friendly, a virtual LTO transaction is supposed to proceed as follows:

Fast, flexible, and friendly, right? In reality, however, the virtual LTO process often bears

little resemblance to this description.

Consumer shops

for merchandise,

notices ad that says

“no credit needed.”

Consumer asks Retailer

about ad. Retailer provides

accurate information about

financing options, which

may include one or more

NCN companies.

Consumer moves forward with LTO transaction.

Consumer does not move forward with LTO transaction.

Consumer completes

electronic application

presented by Retailer.

NCN company receives application and

decides almost instantly whether to

approve Consumer and for how much.

Consumer is approved.

Consumer is not approved.

Retailer inputs information

about transaction in NCN

company platform, which

generates a lease.

Consumer reviews lease, including all legally mandated

disclosures, and is satisfied with the terms.

Consumer reviews lease, including all legally mandated

disclosures, and is not satisfied with the terms.

Consumer e-signs lease

(types name, enters PIN, or

some other digital action).

NCN company

buys merchandise

from Retailer.

Consumer pays fee/makes initial payment

to NCN company, then takes merchandise

home or arranges delivery with Retailer.

NCN company deducts

payments from Consumer’s

checking account or credit

card on a recurring basis.

Consumer may save money on financing costs by paying off the lease early.

This option is available at any time except during the last payment period.

Consumer may end lease by returning merchandise.

This option is available at any time and Retailer or NCN company will arrange for

return or pickup of merchandise.

Neighborhood Composition

Supermajority (>70%) Black and Hispanic/Latino

Retailers Per 10K Residents

0.5 -1.9

>1.9 - 2.9

>2.9 - 4.2

>4.2 - 9.1

1514 1514

Such claims, however, do not tell the whole story.

 No NCN company approves every consumer who applies. NCN

companies have a screening process that, while not necessarily reliant

on FICO scores like traditional credit, is still essentially an evaluation of

creditworthiness.

 Lease applicants must have a credit card or bank account. Snap

explicitly states, “traditional bank account. No pay cards, Green Dot,

Rush, or other such alternatives are allowed.” In other words, Snap

rejects the only financial vehicles available to the truly credit challenged.

De facto credit screening, insistence on mainstream payment methods—together, these

suggest that NCN companies are not in the market to help consumers with no other

financing options. Rather, NCN companies are very savvy businesses that use “modern

technology and alternative data sources”

to target consumers who have just enough

financial stability to pay what appears to be a reasonable monthly bill but not enough to

qualify them for credit that, ultimately, is not predatory.

Retailers for NCN Companies Trick Consumers

It is rare to walk through any New York City business corridor and not encounter some

version of NCN company advertising on the doors or in the windows of retailers. NCN

company ads are often vague. The ad in Figure2 does not include the name of the

NCN company.

Figure 2: Example of NCN Company Advertisement

Although prevalent, the ads are not informative, generally consisting of words like “no

credit needed” and sometimes suggesting cost savings through early payment; for

example, “90-day payment option” (Acima) or “100-day cash payoff” (Snap).

Figure 3: Example of Bronx Retailer’s Advertisement for Acima

Rarely seen in NCN company advertisements are the words “lease” and “rent”—the most

important feature of the product being offered. Other critical information that rarely, if ever,

appears in ads includes:

 leasing fees (akin to interest on a loan);

 other charges and markups;

 duration of the lease; and

 anything else to help a consumer calculate the total cost of the product.

Consumers, therefore, are largely dependent on retailers to explain the terms and

conditions of NCN products. While some NCN companies make more informative material

available to retailers, that information is not necessarily made available to consumers.

During DCWP’s undercover operation, the investigator asked 12 retailers

if they

had any virtual LTO information he could take with him; 11 said no.

This failure to

provide information—or, more nefariously, the tendency to provide false or misleading

information—is also apparent in consumer complaints.

The Better Business Bureau (BBB) has issued “alerts” for some NCN companies regarding

“patterns of complaint.” Companies include:

 Acceptance Now: “failure to disclose key financing terms and conditions.”

 SmartPay: “[c]ustomers experiencing confusion regarding their contracts.”

BBB has also reported: “Customers allege being provided with information about

the payments required to pay off their phones, but later finding they owed more than

indicated.”

In 2020, Progressive agreed to pay $175 million to the FTC to settle charges

related to “misrepresentations” made to consumers.

In early 2020, a DCWP undercover investigator visited 13 retailers offering LTO

agreements and asked them to explain NCN financing. Of the 13, one was a furniture

retailer who explained other financing offers but refused to answer questions about virtual

LTO agreements, saying, “I don’t want to mislead you.” Sales associates at the remaining

12 locations all made deceptive statements or engaged in deceptive practices, including:

 Promising that lease payments would help the consumer’s credit when, in

fact, some NCN companies do not report to credit bureaus.

 Falsely implying that an LTO agreement is like using a credit card and/or

advertising LTO agreements alongside traditional financing products without

mentioning that LTO is a lease product.

1716 1716

 Mischaracterizing financing charges as “interest.”

 Falsely implying that there would be no finance charges (“no interest”) if the

balance was paid within 90days or 3.5months.

 Providing incorrect financing rates and deadlines for early payoffs.

 Referring to products as “no credit check” financing when their partner NCN

companies review credit history.

The misstatements about the potential impact of LTO agreements on a consumer’s

credit history are particularly pernicious because different NCN companies handle credit

reporting in entirely different ways:

 Some report to one or more of the big three credit reporting bureaus.

 Some report to “secondary” credit bureaus with niche specialties, like DataX,

which serves “the non-prime lending community.”

 Some do not report to credit bureaus at all but do send delinquent accounts

to third parties for collection, which results in reports that can damage

consumer credit but not improve it.

Without knowing exactly what is being reported to whom, it is impossible for consumers

to know whether entering an LTO transaction will have any effect on their credit. This leads

to consumer confusion at best, and consumer deception at worst.

Misstatements about the impact of LTO agreements on consumer credit are not limited to

retailers—NCN companies themselves also provide misleading information about credit

reporting. For example, Acima boasts:

“Acima reports your customer’s credit to Experian to help your

customer eventually leave the poor or no credit box they have been

put into.”

But reporting to Experian only has value if the consumer’s creditors pull—and exclusively

rely on—the Experian report. There is no guarantee that they will.

More disturbing is what Best Buy’s Chief Financial Officer (CFO) said during a 2019

investor call, representing the company’s new (LTO) consumers as:

“people who in some cases just have no credit, and this is the start

for them to be able to build a credit portfolio and actually will lead to

a much more robust credit portfolio over time.”

Why is this disturbing? Because Progressive, the NCN company with whom Best Buy

partners, says exactly the opposite on its website:

Does Progressive report to credit bureaus? Can I build up my

credit by doing a successful Lease?

No. We do not currently report to credit bureaus. Progressive

Leasing provides a lease-to-own purchase program, not credit.

NCN company websites are also devoid of some critical information about LTO products.

None of the websites accessed by DCWP explained how much leasing would cost or how

a lease amount is calculated. Although DCWP accessed a SmartPay pricing calculator via

Google, it is not linked on SmartPay’s homepage.

Although the lease agreement includes legally mandated disclosures,

there are several

reasons to believe consumers are not shown these disclosures before executing the lease:

 Consumers have consistently complained about not knowing the

cost of a lease until after leaving a retailer. As an example, the FTC

charged that Progressive “received tens of thousands of complaints from

consumers saying they were provided inaccurate or misleading information

about Progressive’s terms or charges, including more than 15,000

complaints from May 2017 through July2018 alone.”

 Retailer training is so limited that some may not understand that

they are legally obligated to show the disclosures to consumers.

Snap’s retailer training materials, for example, do not dictate that

disclosures be shown.

 The technology used by at least four NCN companies allows the

retailer to click past disclosures without consumers seeing them

and to e-sign on the consumer’s behalf by typing a name or some

other digital identifier.

 DCWP’s investigation revealed that NCN companies permitted, and

sometimes even encouraged, retailers to hide the reality of these

transactions from consumers.

Only one NCN company, Acima, ensures compliance with the disclosure law by texting

leases to consumers’ mobile phones for their e-signature. The screen before the lease

isolates important information, such as how much it will cost to lease the merchandise.

Important as it is to share this communication, reducing a lease agreement to the size of

a cell phone screen can make it difficult to read.

Figure 4: Screenshot of Beginning of Acima’s Eight-page Lease Document

1918 1918

Virtual LTO Terms and Conditions Take Advantage of

Consumers’ Vulnerabilities and the Industry’s Lack

of Oversight

There is no federal regulatory framework governing LTO transactions. In RAC’s words:

“We operate in a supportive regulatory environment with

widespread state regulation recognizing lease-to-own sales

and no comprehensive federal regulation….”

In New York, LTO transactions are governed by PPL §§ 500 et seq. (or Article11). The

industry lobbied for passage of state statutes like Article11 in the 1980s as a safe harbor

from claims that LTO agreements were credit sales.

The New York State Legislature

amended Article11 in 2010 to include various consumer protections, but those

protections did not contemplate virtual LTO transactions.

Prices and Disclosures

Prices

Article 11 sets price caps and mandates price disclosures for “merchants,” which the

statute defines as “a person who, in the ordinary course of business, regularly leases,

offers to lease, or acts as an agent for the leasing of merchandise under a rental-purchase

agreement.”

In a traditional LTO transaction, this definition is uncontroversial because the merchant will

always be the retailer.

In a virtual LTO transaction, however, it is unclear who the “merchant” is:

 the retailer (offers the leasing opportunity to the consumer); or

 the NCN company (issues the lease); or

 both.

Article 11 provides no clear answer. This lack of guidance can impact the ultimate price

paid by consumers who lease merchandise because of the way price caps are calculated.

Specifically, Article 11 requires the disclosure of the various prices a consumer may have

to pay to own or lease merchandise subject to an LTO transaction, then caps the amounts

at which merchants may set those prices. A lease must disclose:

 “cash price:” the amount a consumer must pay to own the merchandise

at the beginning of the lease. The cash price for a merchant’s “first rental”

of merchandise cannot exceed the “merchant’s costs” (the “actual cost,

including [] freight charges” to the merchant of obtaining the goods

from a supplier) multiplied by 1.75, 2, or 2.15, depending on the type of

merchandise being leased (or the “maximum cash price”).

 “total of payments:” the total amount the consumer will have paid to own the

merchandise after making all regularly scheduled lease payments. Total of

payments cannot exceed the cash price multiplied by 2.25.

Table 1: Example of LTO Price Caps under Article 11, Couch as Merchandise

Type of Cost Amount

Merchant’s Cost

(amount the merchant paid for the couch)

$1,000.00

Maximum Cash Price

(the most the merchant can charge the consumer to own the couch

outright at the start of the lease: $1,000 x 2.15)

$2,150.00

Maximum Total Cost

(the most the merchant can charge the consumer to own the couch

at the end of the lease: $2,150 x 2.25 or total of payments)

$4,837.50

As illustrated in Table 1, the merchant’s cost is an important figure that dictates the total a

merchant may charge a consumer at different points in the leasing process.

In a traditional LTO transaction, where the merchant is also the lessor, this process works

because the maximum cash price will never be more than 2.15 times the actual cost to

obtain the merchandise.

In a virtual LTO transaction, however, the retailer first obtains and owns the merchandise

while the NCN company is the merchant “first rent[ing]” the merchandise to the consumer.

As a result, the cash price cap protection is effectively eliminated because “merchant’s

cost” will be the amount the NCN company paid for the merchandise as set by the

retailer—an amount that is not capped by Article11 and may bear no relation whatsoever

to the actual cost to the retailer to obtain the merchandise from a supplier (the amount

contemplated by Article11).

Because the merchant’s cost is such a vitally important aspect of an LTO transaction,

merchants must maintain records that establish the “cost for each item” subject to a

lease.

As noted, however, the law is unclear about virtual LTO transactions, specifically

who qualifies as the merchant. This vagueness becomes important because even if

retailers are not subject to the cash price cap, requiring retailers to maintain records

of their costs could act as an important check on any impulse to unreasonably inflate

merchandise prices.

2120 2120

Figure 6: SmartPay’s Price Disclosures

5/20/2019 Terms & Conditions

1/11

Terms & Conditions

RENTAL-PURCHASE AGREEMENT

PRICING DISCLOSURE

This is a rental purchase transaction:

TOTAL OF PAYMENTS

$2,191.30

You must pay this amount to own the property if

you make all the regular payments.

You can buy the property for less under the early

purchase option.

COST OF RENTAL

$1,041.30

Amount over our Purchase Price you will pay

if you make all regular payments.

OUR PURCHASE PRICE

$1,150.00

Property available at this price

for cash from the lessor.

AMOUNT OF EACH PAYMENT (per term) NUMBER OF

PAYMENTS

RENTAL

PERIOD

10 months

Early Purchase Option (EPO): You can purchase the Property at any time. Your EPO will be calculated as follows: Cash Price

multiplied by a fraction that has as its numerator the number of periodic payments remaining under the Agreement and that has as

its denominator the total number of periodic payments.

You have a right to review this Agreement 48 hours before signing. You may retrieve a copy of this Agreement by making a copy of

this Agreement, copying and pasting the text of this Agreement into a text program, or emailing us at [email protected].

Date: 01/26/2019 Agreement Number: OE42GQL9K

Lessor: SmartPay Leasing, LLC. Lessee/Rental Customer: VASHTI WAGNER

Lessor Address:

SmartPay Leasing

P.O. Box 626

San Francisco, CA 94104

Lessor Contact Number:

1-800-374-5587

Lessee/Rental Customer Address:

VASHTI WAGNER

56 E 184th St, 54

Bronx, NY 10468

Email: [email protected]

TERMS OF AGREEMENT: In this Agreement, “you” and “your” mean the person(s) signing the Agreement as lessee/customer. “We”

and, “us,” and “our” mean the lessor/owner (SmartPay Leasing, LLC.). “Property” means the item(s) being rented. “Agreement”

means this Rental-Purchase Agreement.

1. DESCRIPTION OF PROPERTY

Item Description/Model # Serial # Model Year/Age Condition of Property

iPhone XR 357340092090231 New

Cash Price: $1,380.00

Our Purchase Price: $1,150.00

Damage to Property: None

Cash Price is used in the calculation of Early Purchase Option and reﬂects the purchase price and cost of SmartPay's providing

of leasing services.

2. INITIAL PAYMENT:

Payments are due at the beginning of each term that you choose to rent the Property. Your initial payment will include the

following charges:

Processing

Fee*

Rental

Payment

Tax Non-Leased Items

Payment

Non-Leased Items Taxes &

Fees

Total Initial

Payment

$0.00 $182.95 $16.25 $0.00 $0.00 $199.20

* Processing fee is non-refundable.

You acquire ownership after 11 payments are made. No ownership until paid in full.

For Leased Items: $199.21

For Non-Leased Items: $0.00 + taxes

& fees

Figure 7: Excerpt from SmartPay Lease

5/20/2019 Terms & Conditions

1/11

Terms & Conditions

RENTAL-PURCHASE AGREEMENT

PRICING DISCLOSURE

This is a rental purchase transaction:

TOTAL OF PAYMENTS

$2,191.30

You must pay this amount to own the property if

you make all the regular payments.

You can buy the property for less under the early

purchase option.

COST OF RENTAL

$1,041.30

Amount over our Purchase Price you will pay

if you make all regular payments.

OUR PURCHASE PRICE

$1,150.00

Property available at this price

for cash from the lessor.

AMOUNT OF EACH PAYMENT (per term) NUMBER OF

PAYMENTS

RENTAL

PERIOD

10 months

Early Purchase Option (EPO): You can purchase the Property at any time. Your EPO will be calculated as follows: Cash Price

multiplied by a fraction that has as its numerator the number of periodic payments remaining under the Agreement and that has as

its denominator the total number of periodic payments.

You have a right to review this Agreement 48 hours before signing. You may retrieve a copy of this Agreement by making a copy of

this Agreement, copying and pasting the text of this Agreement into a text program, or emailing us at [email protected].

Date: 01/26/2019 Agreement Number: OE42GQL9K

Lessor: SmartPay Leasing, LLC. Lessee/Rental Customer: VASHTI WAGNER

Lessor Address:

SmartPay Leasing

P.O. Box 626

San Francisco, CA 94104

Lessor Contact Number:

1-800-374-5587

Lessee/Rental Customer Address:

VASHTI WAGNER

56 E 184th St, 54

Bronx, NY 10468

Email: [email protected]

TERMS OF AGREEMENT: In this Agreement, “you” and “your” mean the person(s) signing the Agreement as lessee/customer. “We”

and, “us,” and “our” mean the lessor/owner (SmartPay Leasing, LLC.). “Property” means the item(s) being rented. “Agreement”

means this Rental-Purchase Agreement.

1. DESCRIPTION OF PROPERTY

Item Description/Model # Serial # Model Year/Age Condition of Property

iPhone XR 357340092090231 New

Cash Price:

$1,380.00

Our Purchase Price: $1,150.00

Damage to Property: None

Cash Price is used in the calculation of Early Purchase Option and reﬂects the purchase price and cost of SmartPay's providing

of leasing services.

2. INITIAL PAYMENT:

Payments are due at the beginning of each term that you choose to rent the Property. Your initial payment will include the

following charges:

Processing

Fee*

Rental

Payment

Tax Non-Leased Items

Payment

Non-Leased Items Taxes &

Fees

Total Initial

Payment

$0.00 $182.95 $16.25 $0.00 $0.00 $199.20

* Processing fee is non-refundable.

You acquire ownership after 11 payments are made. No ownership until paid in full.

For Leased Items: $199.21

For Non-Leased Items: $0.00 + taxes

& fees

Acima

See Figure 8. Acima’s disclosure is deceptive for several reasons:

 It discloses an “ACIMA CASH PRICE” instead of the legally mandated

“CASH PRICE,” a distinction that is only relevant if the two prices are different.

 The “cash price” does not appear to be disclosed anywhere within the

lease document.

 Acima refers to itself as “Lessor” instead of “merchant,” then uses its status

as lessor to further confuse the “cash price” issue by defining “ACIMA CASH

PRICE” as the price at which the property is available “for cash from the

Lessor at the time of the Agreement.” As previously noted, however, “cash

price” means the amount a consumer must pay (in cash to the merchant) to

own the merchandise at the beginning of the lease.

Acima’s disclosure box is yet another illustration of why words matter and how a

seemingly small change can result in significantly higher payments for consumers.

Figure 8: Acima Price Disclosures

4.1.5

LEASE NO: #2768226

LEASE DATE: 10/01/2019

TOTAL OF PAYMENTS/TOTAL

COST/RENT-TO-OWN PRICE

COST OF RENTAL

ACIMA CASH PRICE

$2,235.60

$1,200.60

$1,035.00

Amount over Acima Cash

Price you will pay if you

make all regular Renewal

Payments (excludes tax).

Property available at this price for cash from

the Lessor at the time of the Agreement. See

about your early purchase option rights.

AMOUNT OF EACH

PAYMENT

NUMBER OF

PAYMENTS

RENTAL PERIOD

$42.04/weekly 365 DAYS

You must pay this amount to

own the property if you make

all the regular Renewal

Payments (excludes tax). You

can buy the property for less

under the early purchase

option.

Taxes will be added to all

payments.

This represents the

duration of the Lease if

all regularly scheduled

payments are made.

The rental property is NEW and is being acquired by the lessor on the lease date above.

Disclosures

Article 11 requires merchants to disclose prices in a particular format.

Figure 5: Mandatory Disclosure Template

§ 501. Form, NY PERS PROP § 501

after each renewal payment, assuming you make each periodic payment on time.” The rental-purchase agreement shall be

accompanied by a chart showing the amount required to exercise the consumer's early purchase option after each periodic

payment if payments are made as scheduled;

(13) a description of the consumer's reinstatement rights as provided in subdivision five of this section;

(14) a description of the consumer's right to lower periodic payment amounts as provided in section five hundred four-a of

this article.

(15) if warranty coverage is transferable to a consumer who acquires ownership of the merchandise, a statement that the

unexpired portion of all warranties provided by the manufacturer, distributor, or seller of the merchandise that is the subject of

the rental-purchase agreement will be transferred by the merchant to the consumer at the time the consumer acquires ownership

of the merchandise from the merchant; and

(16) a description of the merchant's obligation to maintain the rental merchandise and to repair or replace rental merchandise

that is not operating properly, as provided in section five hundred four-b of this article.

(b)(1) The disclosures required by subparagraphs three, four, five, and six of paragraph (a) of this subdivision shall be printed

in at least ten-point boldfaced type or capital letters if typed and shall be grouped together in a box formed by a heavy line

in the following form:

TOTAL OF

PAYMENTS

COST OF RENTAL

You must pay this amount to own

the merchandise if you make all the

regular payments. You can buy the

merchandise for less under the early

purchase option.

Amount over cash price you

will pay if you make all regular

payments.

CASH PRICE

Merchandise available at this price for

cash from the merchant. See about your

early purchase option rights.

AMOUNT OF EACH PAYMENT NUMBER OF

PAYMENTS

RENTAL PERIOD

per

..............

(insert period)

(2) The box described in subparagraph one of this paragraph shall appear immediately above the space reserved for the

consumer's signature.

Two of the NCN companies, SmartPay and Acima, use disclosures that are not strictly

compliant with the law and may be confusing to consumers.

SmartPay

See Figures 6 and 7. SmartPay:

 Improperly discloses “OUR PURCHASE PRICE” instead of the legally

mandated “CASH PRICE.” “OUR PURCHASE PRICE” is the price SmartPay

paid the retailer for the merchandise—a number irrelevant to the consumer if

it differs from the “CASH PRICE.”

 Displays the legally mandated “Cash Price” further down the page (see

Figure7), where it also reveals that “Cash Price” is “Our Purchase Price”

times 1.2—a larger amount than the one in the disclosure box where the

consumer should expect to see the cash price.

 Improperly uses the larger “Cash Price” amount to calculate the Early

Purchase Option, purchase price, and cost of rental—meaning SmartPay’s

disclosures not only use the wrong words, but also the wrong amounts.

 Refers to itself as “lessor” instead of merchant when, in fact, it is a merchant

under the law. As described, the distinction is particularly important for price

disclosures and determining price caps.

 Fails to include the payment period (e.g., weekly, biweekly), instead using the

generic “term.”

2322 2322

Early Purchase Option

Virtual LTO agreements offer consumers an opportunity to save money by exercising an

early purchase option (EPO). Typically, there are two options offered to consumers:

1. One mandated by statute.

2. One created by NCN companies.

The statutory option is mandated by PPL §504 (statutory EPO). A consumer may

exercise the statutory EPO at any time during the lease by making a lump-sum payment

following a formula provided in the statute. After each recurring payment, NCN companies

must provide the consumer with a receipt listing the statutory EPO amount.

The option created by NCN companies offers greater savings than the statutory EPO;

however, a consumer must exercise it by a certain date (deadline EPO).

Table 2: Example of Deadline EPO

NCN Company Deadline Cost Above Sticker

Acceptance Now 120 days 12%

Acima 90 days Up to $60

Progressive 90 days Up to $79

SmartPay 90 days 20%

Snap 100 days $39

EPO is a good option for consumers financially able to take advantage of it if the offer is

free from deception or unfair obstacles.

This, however, is often not the case. Retailers, with the tacit approval of NCN companies,

routinely mischaracterize the terms and benefits of EPOs.

During DCWP’s undercover operation, several retailers told the DCWP investigator that no

“interest” attached before a deadline EPO’s end date but failed to mention the various fees

and markups that do attach, leaving the impression that a deadline EPO is the same as

paying cash upfront.

It is not.

For this reason, any reference to deadline EPOs as being the “same as cash” or the

“cash price” is deceptive. The FTC agrees, finding violations of the law when numerous

LTO retailers described Progressive products as “the retail price, cash price, or ‘same as

cash’” or as including “no extra fees, charges, or costs.”

In addition to using deceptive advertising about EPOs to drive consumers toward LTO

products, NCN companies make it difficult for consumers to exercise the deadline option.

In fact, Acima admitted as much in a blog directed at LTO retailers:

It isn’t a secret that companies offering No Credit Needed financing

don’t make a dime unless your customers goes [sic] “over” the

advertised 90- or 100-day payment option. Many companies go out

of their way to make it hard for customers to pay on time.

Among the obstacles that consumers face, some NCN companies:

 lead consumers to believe that they must exercise the deadline EPO option over

the phone where they must deal with potentially poorly trained, or uninterested,

customer service agents; and/or

 require immediate lump-sum fund transfers, payments cash-strapped

consumers are rarely able to make.

Acima lets consumers schedule payments for deadline EPOs in advance—but then cancels

the EPO if a single payment “fails to process” or if the consumer makes a payment by phone.

Some NCN companies advertise deadlines that are longer than the actual time consumers

have to exercise the option. For example, Snap advertises a 100-day EPO, but the end date

is only 97-99 days if the 100th day falls on a weekend or holiday. Although the logical, fair

thing to do would be to extend the payoff period to accommodate the weekend or holiday,

Snap instead warns its call center agents to “[e]nsure that the customer’s last payment date

does not fall on a weekend or holiday [because t]his may cause issues with paying off the

account.”

If the call center agent misses the instruction, which is given amid a stream of

other instructions, the consumer suffers the consequences.

Sales Tax

When generating a lease, retailers are supposed to provide the NCN company the before-tax

price of the merchandise. This figure should become the “cash price” in the lease.

Only Acceptance Now makes this clear to the retailer on the screen where the price is

entered.

The failure to clearly and conspicuously include this directive can lead retailers to charge

NCN companies the post-tax price for merchandise.

As part of our investigation, DCWP reviewed 12 Snap leases where the cash price included

sales tax. If Snap were to charge sales tax to the consumer, then the consumer will pay sales

tax for the merchandise twice.

Payment Methods

Many NCN company leases impose payment terms and conditions that can be detrimental

to cash-strapped consumers living paycheck to paycheck.

 Some NCN companies either require payment by Automated Clearing

House (ACH) electronic funds transfer or make ACH transfer the default

option, which a consumer can change only after lease initiation.

Although ACH transfers can be cheaper than credit/debit cards for financial

institutions, for consumers with limited available funds, the potentially lengthy

processing time can pose serious problems.

2524 2524

 Lease terms in small print allow NCN companies to take a consumer’s

money without the consumer expecting it. For example, SmartPay

and Snap leases allow them to debit a consumer’s account early when an

installment payment falls on a weekend or holiday.

 LTO agreements impose various fees related to payment. For example,

Snap charges $20 for each bounced payment and 10% for each late

payment, situations that Snap’s early debit practice can create. Acceptance

Now charges $1.99 “for a telephone payment assisted by a customer service

representative,” even though the complicated nature of some of their own

practices is what creates the necessity for customer service assistance.

Return Policies

NCN company advertising for virtual LTO agreements peddle flexibility, using phrases such

as “cancel your lease at any time,” “terminate … at any time, without penalty,” and “return

products at any time, with no long-term debt obligation.”

Combined with the potential

for low-cost installment payments, these claims could be a big draw for consumers.

However, consumers who attempt to cancel leases and return merchandise often find

themselves entangled in a Kafkaesque nightmare of endless telephone calls, hidden fees,

and undisclosed costs. It is no wonder, then, that between 2017 and February 2020, Snap

initiated 39,000 New York City leases but recorded only two merchandise surrenders.

Mandatory lease periods and cancellation fees

Acima advertises that consumers can “terminate the Agreement at any time, without

penalty.” But Acima’s lease agreements do not allow consumers to end their leases until

they have paid 60 days’ worth of rent.

RAC (which owns Acceptance Now) tells investors that consumers have “the ability to

return products at any time, with no long-term debt obligation,”

but the Acceptance Now

lease agreement has a mandatory two-month term.

In fact, four of the five NCN companies investigated require consumers to pay a fee to end

a lease, be current with payments, or both. Some have charged “repossession fees.” All of

these requirements are at odds with the claims of flexible, no-cost lease terminations.

Vague, complicated, and/or nonexistent return policies

Some NCN company leases direct consumers to call the company if they want to return

merchandise, while others provide no direction at all. Consumers who call the NCN

company may be directed to return the merchandise to the retailer, only to be rebuffed by

the retailer and directed back to the NCN company. This problem is especially pernicious

because call center staff are trained to steer consumers away from returning merchandise.

For example:

 Progressive representatives are told that “[t]erminating a lease should not

be suggested proactively to a customer … It is our preference to work with

customers to find a way for them to retain the merchandise.”

 Acima representatives are told to “urge” consumers to keep the merchandise.

Merchandise too large for ordinary shipping must be scheduled for pickup by the NCN

company. But complaint records indicate that NCN companies often fail to appear, fail to

appear when scheduled, or show up unexpectedly.

NCN companies have other requirements that make returning merchandise unreasonably

complicated such as requiring consumers to:

 submit photographs of merchandise as a condition of pickup; or

 donate oversize merchandise, which includes finding an entity willing to

accept the merchandise.

On the surface, these requirements may seem innocuous or altruistic. In practice,

however, they improperly extend the period that a consumer must pay on a lease.

Real Consumer Experiences

Acima

On March 16, 2020, a consumer informed Acima that

she wanted to return a mattress. On Acima’s instructions,

she emailed photos of the mattress and waited three

business days to hear back from Acima.

Hearing nothing, on March 21, she called again. The

representative said Acima had not received her email.

She sent another email.

On March 24, she called again. The representative told

her there was nothing Acima could do because they had

not received her emails. After more than two hours on

the phone, the representative acknowledged Acima had

received her emails. However, Acima then auto-debited

her account.

On April 13, she called again. The representative told

her that her photographs were not sufficient to initiate

the return process.

Although Acima ultimately acknowledged that her

experience reflected “an issue on our end,” they “could

not stop” her next auto-debit and required that she

donate the mattress within 14 days to avoid yet another

auto-debit. If she could not find an organization to accept

the donation, she could call Acima for an extension. By

this point, however, her state was under a “stay at home”

order due to the COVID-19 global health pandemic.

Progressive

Progressive provides a five-day “cooling off period”

during which consumers can “cancel the lease

completely if they change their mind.”

On February 10, 2018, Ms. R tried to take

advantage of this policy to cancel a furniture order.

She had not received the furniture yet, but the

retailer refused to cancel unless she paid 40% of

the invoice.

Ms. R had to speak to Progressive on five different

days to work out a resolution: Progressive

required Ms. R to pack up the merchandise (four

nightstands and a dresser with mirror) and keep it

in her home until Progressive could pick it up.

On April 7, 2018—three months after Ms. R’s

initial cancellation request—Progressive finally

closed out her account.

2726 2726

The Virtual LTO Retailer

As Ms. R’s story illustrates, retailers are crucial players in the virtual LTO landscape,

and it is impossible to truly understand the industry without understanding what

motivates retailers to partner with NCN companies; what NCN companies expect

and require of the partnership; and how retailers are held accountable when they fail

to meet those expectations or fulfill those requirements. This symbiotic relationship

between NCN company and retailer supercharges the potential for consumer

deception: NCN companies poorly train retailers, ignore retailers’ misdeeds, and profit

from the transactions retailers generate.

The current regulatory framework is no match for this setup, and it is doubtful that

anything other than a significant change to the law can remedy the problem.

Retailers Are Motivated by Potential Profits

Offering an LTO product is profitable because the product targets consumers who,

due to bad, spotty, and/or insufficient credit histories, might not otherwise be able

to purchase merchandise—a situation applicable to more than 35% of Americans.

Consumers buying merchandise they might not otherwise be able to afford means

increased sales for retailers. In fact, analysts at the global financial services company

UBS estimated that Best Buy’s partnership with Progressive could generate as

much as an additional $4billion per year in revenue, almost 10% of Best Buy’s 2019

revenue.

NCN companies know this and press the advantage heavily in their marketing to

retailers:

 Snap proclaims: “Many of our Snap Partners have Increased Sales as

much as 30%!”

 Acima tells retailers: “if you don’t offer your customers the options they

want, they will go somewhere that will.”

In recent years, some NCN companies have sweetened the LTO pot by eliminating

certain retailer fees. NCN companies used to pay retailers approximately 96% of

the merchandise’s sticker price, but now many pay 100%. This makes virtual LTO

transactions more profitable to retailers than letting consumers use their credit card,

since credit card companies take a cut from consumer payments.

Retailers may be further incentivized by NCN companies that offer higher bonuses for

initiating a certain number of leases. In New York City, 24% of Progressive’s retailer

locations receive “rebates” on leases from Progressive, ranging from 0.25% to 4.6%

of the aggregate invoice prices of leased merchandise.

Retailers Are Poorly Trained and Sometimes

Encouraged to Deceive or Evade

NCN companies encourage retailers to promote LTO products to consumers, and they

profit handsomely from that promotion. But they make retailers responsible for ensuring

that consumers understand what they are signing.

Neither NCN companies nor retailers appear to take this responsibility seriously.

The failure to train is particularly problematic when the contract between NCN company

and retailer creates a legal obligation on the part of the retailer to educate consumers

about the LTO product.

NCN company trainings for retailers tend to be simplistic and largely focused on the

mechanics of navigating the application platform. More egregiously, however, trainings that

do venture into the substance of an LTO agreement are focused on diverting consumers

away from important information.

Example NCN Company Trainings

Snap

Snap’s training includes animated vignettes featuring

the avatar “Paul” (retailer) and “Alice” (consumer). One

vignette features the dialogue below.

Alice: “How much does [leasing] cost?”

Paul: “Well it’s free to apply, and if you’re approved,

you’ll just pay a small processing fee and take the

merchandise home today. If you’d like to know how

much you can get approved for before you shop, I can

help you apply in about 5 minutes.”

Paul never answers Alice’s question or tells Alice how

much leasing will cost in any of his dialogues with her—

even though “total of payments” is a required disclosure.

Also, when the training module quizzes the retailer

on terminology, it excludes cost of rental and total of

payments—both legally mandated disclosures.

Progressive

Progressive touts the importance of conveying

accurate information to consumers, but its training

materials “mask the true cost of Progressive’s

plans and include materials directing sales

associates to claim that there are no extra fees,

charges, or costs associated with” Progressive’s

leases

—blatantly false claims at odds with

Article11’s disclosure requirements.

Until August 2019, Progressive’s lease-signing

platform would “auto-scroll[] to the last page of

the agreement, where consumers were prompted

to electronically sign the agreement.”

Consumers

who actually wanted to see the price disclosures

had to scroll back up from the signature page to

find the disclosures.

2928 2928

Retailers Have Very Little Accountability

Consumers who find themselves aggrieved by retailer misconduct have very few options

if they cannot obtain relief from the NCN company. And NCN companies appear to

have very little interest in tracking and investigating claims of retailer misconduct toward

consumers.

In response to a subpoena from DCWP, the five NCN companies produced their

complaint handling procedures:

 Four had no clear instructions about how to detect retailer misconduct and

focused instead on placating the consumer.

 SmartPay had procedures to investigate retailers defrauding SmartPay but

not retailers mistreating consumers.

Sometimes misconduct is obvious: a required email address field entered as

“idonthaveemail” or a lease amount that does not match the invoice/receipt. But most of

the NCN companies examined did not have policies that would detect even these obvious

red flags.

Rather than seek out and investigate retailer misconduct, NCN companies place the

burden on consumers to work out a return with the retailer or to buy out the lease early.

Potential Litigation and

Law Enforcement

This section identifies potential claims against NCN companies and retailers in New York

City. Claims relate to virtual LTO agreements, and the sales, servicing, and collection

conduct around them. Some claims must be brought by enforcement agencies, and

some may be asserted by consumers themselves.

This section is not intended to be exhaustive of all potential claims.

Claims Against NCN Companies

Law Who Can Assert Claim Description

PPL Article 11, enforced

through New York

General Business Law

(GBL) §349

OAG, Consumers

LTO law violations: Disclosures, pricing, lease terms, or

lease servicing do not comply with LTO law, e.g., price

disclosures are not provided.

GBL § 350 OAG, Consumers

Deceptive written statements: In-store or online advertising

contain false or misleading statements, e.g., “cancel the

lease at any time without penalty,” if false.

New York City

Consumer Protection

Law (CPL)

DCWP

GBL § 349 OAG, Consumers Deceptive oral statements: NCN company customer service

representative makes false or misleading statement to

consumer, e.g., “your EPO deadline has passed,” when the

statutory EPO is still available.

CPL DCWP

Telephone Consumer

Protection Act

OAG, Consumers

Collections abuses: NCN company violates consumer

protections in course of seeking past-due payments,

e.g., NCN company calls the consumer 10 times a day.

CPL DCWP

PPL Article 10; Banking

Law §§ 492, 499

New York State

Department of

Financial Services,

Consumers

Lease is Retail Installment Contract (RIC): Lease fits

definition of RIC but NCN company is not licensed as sales

finance company and/or violated RIC law (e.g., does not

include required RIC disclosures).

Truth in Lending Act

(TILA)

Consumer Financial

Protection Bureau,

OAG, Consumers

Lease is a credit sale: Lease fits definition of credit sale but

NCN company did not provide TILA disclosures.

Electronic Signatures

in Global and National

Commerce Act

Consumers

NCN company failed to obtain valid e-signature: Lease was

e-signed on a retailer device and retailer failed to confirm

that consumer had the technology necessary to receive the

lease and EPO information electronically.

Real Consumer Experience

In January 2019, Ms. J reported to Snap that a retailer had lied to her about her payment amount. Snap proposed she

pay off the lease right away under the deadline EPO, but she could not afford to exercise that option. Ms. J continued to

press her case over multiple phone calls, but Snap kept telling her to talk to the retailer about returning the merchandise.

The retailer refused to accept a return, and Snap refused to accept a surrender because she had not yet paid 60 days of

leasing fees. After Ms. J fought for weeks, filed a BBB complaint, and threatened to sue, Snap agreed to let her pay the

deadline EPO amount over the course of a year. That figure, $122/month, was still higher than the retailer had promised.

At least four times, Ms. J’s bank account lacked enough funds because of Snap-initiated ACH transfers.

3130 3130

Claims Against Retailers

Recommendations

NCN companies thrive because they sell a product that is deceptively attractive:

 Yes, they offer low installment payments. BUT, because of excessively high financing rates,

over the course of a lease, a consumer will pay twice what the merchandise is worth.

 Yes, the lease may offer conveniences like cancellation “at any time.” BUT a consumer

must clear significant hurdles placed by NCN companies and LTO retailers to keep them

from cancelling.

In such an atmosphere, policy solutions should focus on ensuring that the product presented is the

product offered, and legislative half measures will not solve the problem. Stated differently:

The incentive structure of the retailer-NCN company relationship, in which both parties profit from

consumer deception and obfuscation, may be irredeemable.

Article 11 is insufficient. A regulatory framework is needed to truly protect consumers.

1. Ban Usury (For Real This Time)

Usury has always been unpopular.

It is expressly banned in several states.

Despite this, some

industries have managed to elude usury laws by inventing loanlike alternative financial products, such

as LTO leases, and by lobbying for exemptions from usury or other special protections.

The federal government should dismantle these protections by enacting legislation like the Loan

Shark Prevention Act—introduced in both the House and Senate—which would cap credit card and

loan interest at 15%.

At the state level, New York should amend its usury statute to ban effective APRs above 16% and

write the cap into statutes like PPL Article 11 that cover specific financial products.

New York has attempted to combat usurious interest rates in various ways:

 banning loans with APRs over 16%;

 requiring a license for sales financing companies that charge effective APRs over 16%;

and

 banning the collection of payday loans that originate out of state.

New York should ban usury for good—no exceptions or protections. By firmly capping interest rates

on LTO transactions, NCN companies and retailers may no longer profit so successfully on a product

that harms consumers. Indeed, NCN companies have argued that they provide a vital service to

people who would not otherwise be able to obtain necessities.

But studies about another high-cost

financing product, payday loans, do not support this argument. Rather, studies show that consumers

do better when payday loans are banned; they find other ways to make ends meet, and they save a

lot of money on financing in the process.

2. Treat LTO Transactions Like Credit Sales

At the very least, LTO agreements should be classified as retail installment contracts (RICs) governed

by Article10 of PPL. New York should end the distinction between RICs and LTO agreements, since,

given the obstacles faced by consumers who wish to terminate leases, the distinction is negligible

in practice. Applying Article10 to LTO agreements would also require that NCN companies not

otherwise licensed obtain a license from the Department of Financial Services.

Law Who Can Assert Claim Description

PPL Article 11,

enforced through

GBL §349

OAG, Consumers

LTO law violations: Disclosures, pricing, lease

terms, or lease servicing do not comply with

LTO law, e.g., price disclosures not provided.

GBL §350 OAG, Consumers Deceptive written statements: In-store or

online advertising contain false or misleading

statements, e.g., “90 days same as cash,” if

there is a financing charge.

CPL DCWP

GBL §349 OAG, Consumers Deceptive oral statements: LTO retailer

makes false or misleading statement to

consumer, e.g., “making payments on time

will improve your credit score.”

CPL DCWP

GBL § 349

OAG, Consumers,

District Attorney

Retailer signs lease in place of consumer:

Retailer e-signs consumer’s name on lease.

CPL DCWP

New York State

Penal Law § 170.05

District Attorney

333232

Conclusion

For many consumers on a tight budget, the lure of a virtual LTO agreement to obtain

merchandise otherwise too expensive to buy on the spot may be too attractive to resist.

But, as DCWP’s investigation highlights, after signing an agreement, consumers are often

left blindsided by lease terms and face major hurdles when trying to cancel their purchase.

And thanks to weaknesses in regulatory oversight for virtual LTO agreements, NCN

companies have been able to escape intense scrutiny for potentially predatory practices.

New Yorkers are not powerless, however.

Through a combination of increased awareness, reliance on existing legal options,

and potential legislative reform identified by DCWP, New Yorkers can demand more

transparency and fairness from virtual LTO providers.

3534

Endnotes

NCN companies appear to use significantly different contracts in four states, if they operate there at all:

Minnesota, New Jersey, Wisconsin, and Wyoming.

DCWP knows of only one NCN company offering leases that do not end in ownership: Tempoe, LLC a.k.a.

Why Not Lease it. Tempoe partners with a handful of New York City retailers and its footprint in New York City

appears to have decreased even as virtual LTO transactions have surged.

PPL § 507(4).

Rent-A-Center (RCII) Q3 2019 Earnings Call Transcript, The Motley Fool, Nov. 8, 2019, https://www.fool.com/

earnings/call-transcripts/2019/11/08/rent-a-center-rcii-q3-2019-earnings-call-transcrip.aspx; see also Rent-A-

Center: Positioned for Growth, March 2020 (“RAC Investor Presentation March 2020”), available at

https://investor.rentacenter.com/static-files/807fda2a-3b53-4672-8370-b0055e7d38c0, at 5 (“LTO revenue gains

have accelerated since 2015”).

Clint Engel, Profits drops [sic] after 2017 Tax Cut Gains, Furniture Today (Feb. 26, 2019), https://www.

furnituretoday.com/business-news/rent-center-q4-earnings-sales-beat-expectations/#:~:text=RAC’s%20

Acceptance%20Now%20division%2C%20which,store%20sales%20gain%20of%209.6%25.&text=-

Franchising%20revenues%20increased%20to%20%249.5%20million; Rent-A-Center (RCII) Q4 2019 Earnings

Call Transcript, The Motley Fool, Feb. 25, 2020, https://www.fool.com/earnings/call-transcripts/2020/02/26/rent-

a-center-rcii-q4-2019-earnings-call-transcrip.aspx.

RAC Investor Presentation March 2020, supra note 4, at 7.

Comvest Partners, https://comvest.com/portfolio/acima-credit/ (last visited Feb.1, 2021).

Rich Duprey, Aaron’s Uses Acquisition to Thwart Takeover, The Motley Fool (April21,2014),

https://www.fool.com/investing/general/2014/04/21/aarons-uses-acquisition-to-thwart-takeover.aspx.

Id.

Lowe’s Credit Center, www.lowes.com, https://www.lowes.com/l/Credit.html (last visited Jan.15,2021).

Progressive Leasing, https://progleasing.com/merchant/ (last visited Jan. 15, 2021).

Abha Bhattarai, A Best Buy program is doubling the price of items for some customers, Wash. Post,

Feb.27,2020, https://www.washingtonpost.com/business/2020/02/27/best-buy-program-gets-shoppers-pay-

twice-list-price-big-ticket-items/.

See Federal Trade Commission v. Prog Leasing, LLC, Case No. 1:20-mi-99999-UNA, Complaint filed

April20,2020 (N.D. Ga) (“FTC v. Prog Complaint”) available at https://www.ftc.gov/enforcement/cases-

proceedings/182-3127/progressive-leasing.

Matt Kempner, Atlanta-based Aaron’s agrees to one of largest ever FTC settlements, Atlanta J.-Const.,

April 21, 2020, https://www.ajc.com/news/local/atlanta-based-aaron-agrees-one-largest-ever-ftc-settlements/

NJWGcx4v4B1UPweLjnwvxK/.

Shant Sharigian, ‘Get the f—k out of the store:’ T-Mobile stores accused of ripping off New York City

customers, N.Y. Daily News, Sept.5,2019, https://www.nydailynews.com/news/politics/ny-t-mobile-new-york-

alleged-scam-20190905-au4zls7ggbfbdlkzicdyyvqlci-story.html.

See Snap Finance Overview, Pitchbook, https://pitchbook.com/profiles/company/98317-36 (last visited

Jan.15,2021).

See Valerie Villareal, Snap Finance Partners with BMO Harris Bank to Expand Rent-to-Own Financing, @PRO,

https://www.rtohq.org/2017/09/snap-finance-partners-bmo-harris-bank-expand-rent-financing/ (last visited

Jan.15,2021).

Race/ethnicity data are based on calculations using U.S. Census Bureau’s American Community Survey

(ACS), One-Year Public Use Microdata Sample (PUMS), 2018. Retailer addresses were supplied by the five

subject NCN companies.

This pattern resembles that of other high-cost financing. For the connections between race and predatory

mortgage lending, see Patrick Bayer et al., What Drives Racial and Ethnic Differences in High-Cost Mortgages?

The Role of High-Risk Lenders, 31(1) Rev. Fin. Studies 175, 182 (2018) (“the substantial market-wide racial

and ethnic differences in the incidence of high-cost mortgages arise because African-American and Hispanic

borrowers tend to be more concentrated at high-risk lenders. Strikingly, this pattern holds for all borrowers even

those with relatively unblemished credit records and low-risk loans.”); Justin P. Steil et al., The Social Structure

of Mortgage Discrimination, 33(5) Hous. Stud. 759 (2018) (finding that high-cost mortgage lenders sought out

borrowers in Black and Hispanic neighborhoods and sought to influence leaders within Black and Hispanic

communities). Regarding payday loans, see Payday Lending in America: Who Borrows, Where They Borrow, and

Why, Pew Charitable Trusts (2012); Race Matters: The Concentration of Payday Lenders in African American

Neighborhoods in North Carolina, Center for Responsible Lending (2005).

See, e.g., About Us, www.progleasing.com, https://progleasing.com/about-us/ (last visited Jan.15,2021)

(Progressive helps retailers “provide … options to consumers with less than perfect credit”); What Others Are

Saying, www.smartpay.com, https://www.smartpaylease.com/using-smartpay (last visited Feb. 1, 2021) (quoting

a customer: “They have allowed me, a minister on a very strict budget, to obtain a high quality phone...”); What

Snap Is All About, www.snapfinance.com, https://snapfinance.com/partner/why-snap (last visited Jan.15,2021)

(“We recognize the need to provide easy financing for credit challenged customers, because even though their

traditional options are limited, they still need to replace worn tires or buy a new bed for their growing child. That’s

where we come in!”).

Acima, https://www.acimacredit.com/company (last visited Jan. 15, 2021).

FTC v. Prog Complaint, supra note 13, ¶ 18.

DCWP’s undercover operation involved visits to 13 retailers. The undercover investigator asked 12 retailers for

print materials.

Interestingly, when a different DCWP employee went back to the same retailers and requested information

after identifying herself as a DCWP employee, three of the retailers produced material that they had not offered to

the undercover investigator.

Rent-A-Center, Inc., Better Business Bureau, https://www.bbb.org/us/tx/plano/profile/rental-furniture/rent-a-

center-inc-0875-21001476/details#all-alerts (last visited Jan. 15, 2021) (The alert is associated with Acceptance

Now’s parent, RAC).

Smart Pay, LLC, Better Business Bureau, https://www.bbb.org/us/oh/cincinnati/profile/bill-paying-services/

smartpay-llc-0292-90020874/details#all-alerts (last visited Jan. 15, 2021).

See Federal Trade Commission v. Prog Leasing, LLC, Case No. 1:20-mi-99999-UNA, Stipulated Order for

Permanent Injunction and Monetary Judgment, 2020 (N.D. Ga), available at https://www.ftc.gov/enforcement/

cases-proceedings/182-3127/progressive-leasing.

In one of Progressive’s training videos for retailers, the presenter explains that Progressive does not report to

credit bureaus and therefore does not help consumers’ credit scores. He then asks with a wince: “not the answer

you were expecting? Have you maybe been telling customers it will help?”

The Truth About No Credit Needed, Acima Blog (Posted Oct. 3, 2018; link no longer accessible). https://www.

acimacredit.com/blog/the-truthabout-no-credit-needed.

Best Buy (BBY) Q4 2019 Earnings Conference Call Transcript, The Motley Fool, Feb. 27, 2019, https://www.

fool.com/earnings/call-transcripts/2019/02/27/best-buy-bby-q4-2019-earnings-conference-call-tran.aspx.

Frequently Asked Questions, Progressive Leasing, https://progleasing.com/frequently-asked-questions/

(last visited Jan.15,2021) (“Does Progressive report to credit bureaus?”).

3736

Smart Pay Lease.com, https://apply.smartpaylease.com/learnmore/q1w-dgtracfoneweb (last visited

Jan.15,2021).

See PPL § 501(16)(b)(1).

FTC v. Prog Complaint, supra note 13, ¶ 48.

RAC Investor Presentation March 2020, supra note 4, at 4. See also FTC v. Progressive Leasing, Comm’n File

No. 1823127, Dissenting Statement of Commissioner Rebecca Kelly Slaughter (April 20, 2020), at 2, available at

https://www.ftc.gov/system/files/documents/public_statements/1571915/182_3127_prog_leasing_-_dissenting_

statement_of_commissioner_rebecca_kelly_slaughter_0.pdf (“At almost every turn, this $8.5 billion industry escapes

oversight.”).

See National Consumer Law Center (NCLC), Consumer Credit Regulation § 13.3.4.1 (rev. 2020). See also

@PRO The Rent-To-Own Industry Legislative Information, www.rtohq.org, https://www.rtohq.org/wp-content/

uploads/2019/07/APRO-Flipbook-Legislative-Information.pdf (last visited Jan. 15, 2021), at 5. (LTO lobbying group

claiming “the lack of definition” of LTO in the law “caused confusion in the courts in the early 1980s”).

See PPL §§ 503(1)-(4); 501(16)(b)(1); 500(5).

In this regard, NCN companies are left to their own devices and it shows: in lease documents, Snap refers to itself

as the “merchant,” while Acceptance Now, Acima, Progressive, and SmartPay refer to themselves as “lessors.”

See PPL §§ 500(2), 500(12), 503(2).

PPL § 503(3).

PPL § 503(1).

DCWP reviewed NCN company training manuals and other documents used for, by, or impacting New York

City retailers—none mentioned whether the NCN companies were told, or were otherwise aware, of a merchant’s

obligation to maintain records of costs.

PPL § 501(16)(b)(1).

PPL § 504(2).

FTC v. Prog Complaint, supra note 13, ¶ 25.

The Truth About No Credit Needed, supra note 29.

Excerpt is based on subpoenaed records.

Snap requires payment by ACH. Acima and SmartPay require that consumers enter checking account information

and ACH is the default payment method.

FAQs, www.progleasing.com, https://progleasing.com/frequently-asked-questions/ (last visited Feb.1,2021)

(“You can cancel your lease at any time.”); Frequently Asked Questions, www.acima.com, https://www.acimacredit.

com/faqs-new#can-cancel (last visited Jan.15,2021) (“You may terminate the Agreement at any time, without

penalty.”); RAC tells investors that consumers have “the ability to return products at any time, with no long-term debt

obligation[.]” RAC Investor Presentation March 2020, supra note 4, at 4.

Snap’s 2019 lease states the same rule, but its Feb.2020 internal policies seem to allow returns during this

period, after Snap has determined that the retailer will not allow a return.

RAC Investor Presentation March 2020, supra note 4, at 4.

But Progressive also tells employees: “once a customer has indicated a desire to terminate their leases, no effort

should be made to talk them out of it[.]”

Bhattarai, supra note 12.

Id.

The Truth About No Credit Needed, supra note 29.

Swipe Fees, National Retail Federation, https://nrf.com/hill/policy-issues/swipe-fees (last visited Feb.1,2021).

For example, SmartPay’s contract states, “Retailer will be responsible for educating its … potential customers

about the [leasing] Program and its features.” Another NCN company tells the retailers, “to the best of your ability,

correctly explain our financing plan . . . .” See also FTC v. Prog Complaint, supra note 13, ¶ 24.

FTC v. Prog Complaint, supra note 13, ¶ 24.

Id., ¶¶ 36-37.

Consumer Protection Law, NYC Administrative Code § 20-700 et seq.

Telephone Consumer Protection Act, 47 U.S.C. § 227.

PPL Article 10 defines retail installment contracts (RIC) to include leases where the lessee “is bound to become,

or has the option of becoming, the owner of the goods upon full compliance with the contract.” PPL § 401(6).

The only stipulation is that the merchandise must be taken as “security … for the buyer’s obligation.” Id. The New

York Uniform Commercial Code (UCC) states that “whether a transaction in the form of a lease creates a lease or

security interest is determined by the facts of each case.” UCC § 1-203(a). The lease “creates a security interest if

the consideration … is an obligation for the term of the lease and is not subject to termination by the lessee[.]” Id.

at §1-203(b). An LTO lease that the consumer cannot terminate will, therefore, fit the definition of a RIC.

New York courts have not been confronted with the question of whether LTO leases are RICs. As to leases

generally, the Second Department held a purported lease of a boat to be a RIC, noting that it was obligated to

“look to the rights [the contract] confers and the obligations it imposes to determine whether it has the essential

attributes of a” RIC. Granite Auto Leasing Corp. v. Jeff-Mar Bus Leasing Corp., 353 N.Y.S.2d 217, 220 (2d Dep’t

1974).

Several high courts of other states have ruled that LTO leases can be or always are RICs under their states’

analogous statutes. See LeBakken Rent-To-Own v. Warnell, 223 Wis.2d 582 (Wisc. 1998); Perez v. Rent-A-Center,

Inc., 186 N.J. 188 (N.J. 2006); Miller v. Colortyme, Inc., 518 N.W.2d 544 (Minn. 1994).

TILA defines “credit sales.” See 15 U.S.C. § 1602(h), 12 C.F.R. § 1026.2(a)(16). The definition is like Article 10’s

definition of RICs (see supra note 62), but clearer, expressly including all leases unless the consumer can terminate

them “without penalty at any time[.]” Id. This captures all leases that disallow returns before 60 days of rent has

been paid. Such credit sales are regulated as “closed-end credit” and subject to specific disclosure requirements,

including that the contracts state the APR. See 12 C.F.R. § 10.26.18.

E-contracts are governed by the federal Electronic Signatures in Global and National Commerce law (ESIGN).

15 U.S.C. § 7001, et seq. ESIGN establishes that e-signatures on contracts are generally valid but imposes special

requirements on consumer transactions. See 15 U.S.C. § 7001(c)(1)(C). When legally mandated information

is involved, it may only be provided electronically if the consumer “consents electronically, in a manner that

reasonably demonstrates that the consumer can access information in the electronic form that will be used to

provide the information that is the subject of the consent.” Id. subd. (C)(ii). There are no cases interpreting this

provision of the 2000 law. NCLC has analyzed the provision and its history and concludes that it requires the

merchant to “test [] the consumer’s technology,” not just the “consumer’s technical knowledge,” and therefore this

requirement is not satisfied when a consumer electronically consents on a retailer’s device. See NCLC, Consumer

Banking and Payments Law § 11.4.3.

Christopher L. Peterson, Usury Law, Payday Loans, and Statutory Sleight of Hand: Salience Distortion in

American Credit Pricing Limits, 92 Minn. L. Rev. 1110, 1116-18 (2008).

See Why 36%? The History, Use, and Purpose of the 36% Interest Rate Cap, NCLC, 3-4 (April2013), available

at https://www.nclc.org/images/pdf/pr-reports/why36pct.pdf.

Legislation has been introduced to ban auto finance charges above 16% effective APR. See N.Y. Senate Bill

S5947, available at https://www.nysenate.gov/legislation/bills/2019/s5947.

See, e.g., About Us, www.progleasing.com, https://progleasing.com/about-us/ (last visited Jan.15,2021)

(Progressive helps retailers “provide … options to consumers with less than perfect credit”); www.smartpay.com,

https://www.smartpaylease.com/using-smartpay (quoting a customer: “They have allowed me, a minister on a very

strict budget, to obtain a high quality phone”); What Snap is All About, www.snapfinance.com, https://snapfinance.

com/partner/why-snap (last visited Feb.1,2021) (“We recognize the need to provide easy financing for credit

challenged customers, because even though their traditional options are limited, they still need to replace worn tires

or buy a new bed for their growing child. That’s where we come in!”).

04/2021