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Rent to Own Legislation 101; A Real World Guide To Communicating With Legislators
12-20-06
RTO Online - The rent to own industry's trade website
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Korst's testimony before the New York General Assembly in October of this year is, in our opinion, the defining example of pro-industry speech.

There will be no shortage opportunities for Rent to Own industry professionals to speak before state and federal legislators in the coming months and years regarding the unique nature, and legitimacy of the Rent to Own transaction.

advertise here

Based on evidence, there is a general lack of understanding of the RTO transaction by legislators on both sides of the political aisle. The best way to educate legislators is to meet with them face to face. The problem; What to say?

RTO Online believes the best way to learn is by watching an expert. As the nations top Rent to Own Company, Rent A Center is a leader in all major state and federal legislative efforts. Chris Korst, Rent A Center Vice President and General Counsel, has probably met with, and testified in front of, more legislators than any other person in the industry.

In October of this year, Korst testified before the New York General Assembly. The 160 page transcript of the hearing is, in our opinion, the defining example of pro-industry speech. RTO Online offers the transcript here, in its entirety, for training purposes. Note: This is a real-time, word for word  transcription of the testimony supplied by the New York Assembly. Please disregard grammatical errors.

Read the entire transcript, Print the entire transcript or click the shortcuts on the left to jump to specific issues.

Shortcuts to key sections of the transcript.
Print entire transcript
I think it would be helpful, once again, to remind you all and the committee for the record of what it is that we do in the rent-to-own business...
Industry and independently developed statistics have shown that just 20 to 25 percent of all transactions in our business result in the consumers are acquiring ownership...
Over 85 percent of our customers rent on a week to week basis and almost all pay in person in our stores. I think it's fair to say, as I did in Buffalo, those statistics are powerful evidence and real evidence of the fact that we are in the rental business first and foremost
It bears repeating here today, that statute was one of the very first rental purchase specific laws to be passed in the country and since that time, 46 states, the District of Columbia, the Puerto Rico, the Virgin Islands and the territory of Guam have modeled legislation after what was done in New York here 20 years ago.
The areas of focus of the New York Rental Purchase Agreements Act are both, I guess you might describe it as procedural and substantive, procedural meaning in my parlance full and complete disclosure of all key financial terms, transparency if you will
As we've heard a couple weeks ago, from two customers who had had an unfortunate experiences with rental purchase companies out in the western part of state, what struck me as I listened to those stories, aside form the fact that it was a terrible thing to hear about and had have happened was that the law that was in place worked.
So, I think the lesson there is you know responsible merchants have an obligation to train and retrain and retrain again their employees so that those sorts of mistakes aren't made. But laws aren't written because nobody ever makes mistakes.
The first speaker refereed to the negative community impacts, that businesses that youíre looking at today and identified rent-to-own as one of those.
First of all, 49 percent of our stores nationwide are located in urban areas. I think the national -- the 2000 census data indicates that somewhere over 60 percent of all Americans live in Urban areas and yet only 49 percent of our stores are locate indeed Urban areas.
 it's simply not the case that we concentrate on urban areas. We concentrate on areas where our customers are who need and want our services.
With respect to the racial mix and that issue was brought up as well in terms of targeting, I can, again, only speak for rent a center, but I can you that our mix of customers is roughly, I shouldn't say roughly, is nearly identical to the overall US population mix in terms of race make up. So it's simply not the fact that a disproportionate number of our customers are African American, are Hispanics or any other minority.
you asked about an analysis that might have been done in 2001 by some entity in New York City. I can tell you that that entity was the Department of Consumer Affairs. I was involved in that and Rent-A-Center to that analysis,
to no one's surprise the department found our prices are higher than what the these products are available for in retail stores, but I think it's fair to say that first and foremost, we've never said that they aren't. I think we've been very forthright and transparent with respect to the our business and why it costs more
we price our goods not on the basis of that single customer who might rent and acquire ownership 12 months later and never pay late and never have any of the service issues and we have to price our goods and services based upon doing business with all of our customers and all of their experiences taken together as one.
what we do is so very different from retail that to make those comparisons between what we are for business services that for what you might be able to purchase those same products for from Best Buy, is really to compare apples to oranges
Best Buy certainly doesn't provide the opportunity to pay over time, unless you borrow money from either them or a credit card company, this in which case that costs you money. They don't provide the services that we do, they charge extra for the delivery and installation. And there are certainly no right to terminate the transactions
The final speaker or the speaker before me, I think mentioned three issues that, she asserted the rent to own companies are ďnotoriousĒ for. The first was, our cash prices and how they relate to those same cash prices at retail, the second had to do repossessing without notice, and the third she stated, was misrepresenting used products as new.
the New York statute, as well as it does, is that it has a private right of action that not only provides minimum statutory penalties but it also provides for attorneys fees so there is an encouragement to the private bar to accept these cases and pursue them. So, it's before been a very effective tool for making rental purchase merchants, reasonable and responsible and treat their customers fairly, which is ultimately what we really strive to do.
we've partnered with state governments and municipalities in other states before and we would be delighted and honored to do so if that's an object that you would like to pursue going forward. And then finally, of course, as you all think about 2008, we would like to be partners with you in addressing whatever concerns may be raised and need to be discussed through legislative process.
Questions and Answers
Q: CHAIRWOMAN PHEFFER: Thank you. As always, you certainly do put on a bright light on the industry in a very positive and just a couple of questions. You talked about, and I have your display, which is very clear which says that it's new or it's been previously rented on and on and it talks about the monthly price, the cash price, and the sold price. How do you establish the cash price again, would you tell us? And then let's say it talks a 23 month payment, what happens in I decide and everything works out and I want to end it in 12 months, how do you compute the cash price at that time?

A: MR. KORST: Madame Chairwoman, the first question is really answered by something that we've talked a little bit about in the past and that is, like most businesses I assume, we have an understanding of how much it costs us to be in this business.

I think over the last five years we've averaged about eight percent in net profits and I think if you check the record the S&P 500's Companies have over that same period averaged 11 and a half percent. So, I think we're well within the range of reason in terms of profitability

Maybe more informative than that long winded answer, though, is a comparison between what it costs in our business for a consumer as compared to retail, and I can tell you that, and again, I've said this before, we're completely transparent

The macroeconomics are if you think about the retail marketplace today it's dominated by these huge retailers. Best Buy I think I mentioned, sells more televisions on the day after Thanksgiving than we rent in an entire year. That's just a different scale.

In answer to your second question, if after 12 months on a 23 months transaction you wished to terminate the transaction and purchase the goods, then at that point, we would take the original cash price, and by the way this is all dictated by the statute, we would take the originally stated cash price and subtract from that one half of the total amount of rental payments that you made up to that point.

Q: CHAIRWOMAN PHEFFER: Thank you. The other one is why the other people won but now we know that. How come rent-to-own have such a bad rap then? I mean, you heard the testimony two weeks ago you hear the testimony now, we have the laws, is it the few smaller ones that take advantage and the enforcement is not there? Every one of the conversations today about predatory lending puts in rent-to-own as one of the evils on the low-income people of a community.

A: MR. KORST: I'm going to answer your question in a way they think is different than what you might expect, Assemblywoman. I think the real problem is that we all wish that families and individuals who don't have the same economic means and don't have the same credit scores as others wouldn't have to pay more for the transactions that they engage in, and our transaction is one that appeals to the customers who are in that group.

I don't know what to do about it, frankly, because if the options on the table are to consider enacting legislation that would treat this transaction in the same fashion as credit sales are treated and regulated in this state, then that decision would put this industry out of business and this option would no longer exist.

Calling us credit just simply means we're going to have to play by those roles and by the way, I think you all ought to take a step back and think about this, credit companies aren't doing business with many of the customers that we do business with because the laws don't permit the flexibility that they need in order to do that business with them.

the FTC wrote about this in 2000 in there Seminal Report on the rent-to-own industry, there is no barrier, there's no bar to a credit company opening up a store and lending money to make these purchases to the exact same customer we're serving and yet we can all look around and see that they're not there, right?

I'm no banker and I'm in the an economist, but I am somewhat keen observer of how the marketplaces work, and my suspicion is that banks weren't lending money before. In fact, to individuals with bad credit and little amounts of cash.

the demand is clearly there. The question and challenge I think, for you all and for folks who are in those industries and for folks like me who think about these issues a lot is, how do you balance the desire to make those transaction, though options available with sufficiently strong consumer protection that ensures that consumers who have the need are treated fairly by lenders who are responsible? And that's the challenge.

I think we've proven turning back to the rent-to-own piece and Rent-A-Center in particular, we've been in business here for 25 years and I being we've proven consistently that that we are driven by customer service. That this is a highly competitive industry, that we loose customers to our competitors all the time and that if we don't continue to enhance what we offer and how we offer T we're going to lose that customer

Q: CHAIRWOMAN PHEFFER: Yes. Well, it gave me -Ė there was one and I donít Ė I remembered in Buffalo that the competition between the companies, there is one thatís much cheaper?

A: MR. KORST: Aaronís Rents, which has come into the New York State markets, really I think over the last 4 or 5 years. They're a relative new comer and they're offering the same transaction as we do, but if you were to look at their total of payments, theyíd probably be about 25 to 30 percent less than what customers could get the same goods for from us if acquiring ownership was there goal and they don't do any credit checks, they serve the exact same customers that we serve.

But again, the Federal Trade Commission, not known as a softie on consumer protection, observed some time ago that this I highly competitive business, all you need is a truck some furnisher and appliances and you can compete with Rent-A-Center

many of our customers have credit, it's just limited. And so they protect that credit for emergencies or back to school when they need clothing and books and so forth, and then others choose not to use credit. They'd rather -- maybe they've had some problems before and they don't want to get into the credit trap again if you will, so they use our transaction as a way of getting the things that they need, and yet not having to enter into a debt transaction.

It's also I think an economically thoughtful transaction and I'll give you one instance, an example of that. A family of 4 will spend more every week at the laundry mat than they would renting a full size washer and dryer from one our Rent-A-Center stores. Yet after 12 months they wouldn't own the Laundromat, they would own the washer and dryer that they had rented from us. And by the way, how different is the convenience factor?

Q: CHAIRMAN TOWNS: Thank you. Mr. Korst, who do You have to register with when you set up shop, is there a registration process in order to say we're Rent-A-Center and we're here, because --

A: MR. KORST: No. There are Ė Iím sorry, thatís an excellent point. There is no statewide licensing requirement. There are a number of city requirements including New York City

Q: CHAIRMAN TOWNS: The reason why I asked that is that is that, I know that with us making the call to have these discussions that weíve had folks would have come in, it's not like we've had to find someone and subpoena them and drag them in. I know that we've had we've increased our understanding of some things in some places and maybe there are some bad guys that are out there that are doing business similar to the stories that we've heard within check cashing industry, that there are people who are licensed and there are people who are unlicensed and where we can't find those unlicensed, a lot of opportunity is there for unscrupulous activity.

A: MR. KORST: Mostly itís about access. If you think about the examples that you just gave, you needed access to a variant on what you already have in your life, you have a car but you're in Florida and so you don't want to have to buy another car but you but you need access and there is Hertz who is willing to provide that. You need golf clubs, youíre out of town, and you donít want to take your clubs on the plane, same option. Access is a little different for our customers.

 access to our customer is, I need this, I want this, and these companies are willing to do business with me even though I have bad credit and I don't have very much cash, you know, and there's the access. That's the switch that rental provides that other transactions just don't.

Q: ASSEMBLYWOMAN PEOPLES: Okay. I guess to a certain extent -- let me just ask you this. You only represent Rent-A-Center sure in the here representing all the rent-to-own industry, you're just representing Rent-A-Center.

A: MR. KORST: That is correct, although I should say that Rent-A-Center is a member of both the New York State Rental Leaders Association and as well as the National --

Q: ASSEMBLYWOMAN PEOPLES: I didnít realized there was one of those and quite frankly I wonder whey they havenít participated in this hearing?

A: MR. KORST: I think they left that up to me.

Q: ASSEMBLYWOMAN PEOPLES: So you are speaking for all the rent-to-own centers.

A: MR. KORST: I guess in a matter of speaking, I would be. I should also be clear, that association really has about, including all of our stores, only about two thirds of the total store count here in the state and so there's probably hundred stores that are owned and operated by business people who are not members of the association.

Q: ASSEMBLYWOMAN PEOPLES: Clarence New York. I really doubt that you have any in Clarence. I doubt that you have any -- these are very affluent suburban communities I don't think that you have them there.

A: MR. KORST: That's all right. If you wouldn't mind I would like to just point out one thing, that big screen televisions are less than 7 percent of our overall business. Beds, couches, for kids to sit and watch TV or do homework on, computers, so they can keep up in school, appliances, so that the food can stay hold cold and the clothes can be washed, that's the bulk of our business. Luxuries of the sort that -- I mean, it's a popular myth and it's easy to wave it and be critical of it, but at the end of the day, that's a very small part of our business, furthermore, if a customer under one of our transactions truly can't afford the product and it is a luxury of the sort that you've just described, they have the option to return that good at any time and have no further payment obligations.

MR. KORST: Good afternoon, Madame Chairwoman, Chairman Towns and Assemblywoman Peoples, thank you for the opportunity to, again, testify before this joint committee. My name is Chris Korst and I am Senior Vice President and General Counsel for Rent-A-Center Incorporated, we're based out down in Dallas Texas or the Dallas Texas area, I should say. (top)

I have prepared testimony and submitted that testimony to the committee for your consideration, but rather than go through that, I think it's largely and substantively the same as I testified to a couple of weeks ago when we were in Buffalo together. I would like to take the opportunity and maybe just touch on couple of highlights because those highlights, I think, will address a couple of the issues that have been raised today in regard to the rent-to-own or rental purchase transaction. Then in addition to that, go ahead and specifically address some questions and concerns that were raised and then Iíd be glad to answer questions at that point. I will try to be brief. I have an airplane and I would rather catch it than end up staying over one more day. As much as I like New York City, I do need to get home some time. (top)

I think it would be helpful today would be helpful, once again, to remind you all and the committee for the record of what it is that we do in the rent-to-own business. Who our customers are and what our transactions are that so that the issues that youíve heard raised today or that you may have concerns about can be considered and addressed in a proper legal and factual framework. Rent-to-own companies like Rent-A-Center offer name brand high quality durable goods furniture appliances, electronics and computers are our main product lines, for rent on a week-to-week or month-to-month basis. Customers are typically never obligated beyond the initial term to continue renting and in fact can return the rented product at any time without penalty and without further financial obligation. Our customers also have the option to continue renting after the initial rental or renewal period and can do so simply by paying an additional weekly or monthly rental payment in advance. (top)

They also, as you would guess, from the name of the transaction rent or purchase or rent to own have the option again without the obligation to acquire ownership of those goods. In addition to the property products themselves, we provide delivery and installation of those products in our customers homes as well as full service, including the provision of loaners or replacement items if we can't repair the original items in the customers homes. All of that we provide without additional charge beyond the basic rental charge that we have. And finally, we do not require any down payments or security deposits and we don't do credit checks on our customers as we don't consider their prior credit history in deciding whether or not to rent them. (top)

Industry and independently developed statistics have shown that just 20 to 25 percent of all transactions in our business result in the consumers are acquiring ownership. Slightly less than 70 percent of all of our transactions terminate with the property being returned to the merchant and about 7 percent of our transactions the customers maintain possession of the property without paying rent for it. On average our products are rendered between 4 and 5 times before leaving our inventory by purchase or otherwise and those products, again on average, leave our inventory after about 20 months. (top)

Over 85 percent of our customers rent on a week to week basis and almost all pay in person in our stores. I think it's fair to say, as I did in Buffalo, those statistics are powerful evidence and real evidence of the fact that we are in the rental business first and foremost and while we do have the option to acquire ownership if that's what the customer desires, and while it is a significant minority of the our customers who do in fact chose that option. Nonetheless, we have all of the costs associated with renting and having the product returned to us and then having to refurbish it, repair it and re-rent it, as used at that point, alongside product that may be new. (top)

In New York, as you are aware, our transactions are regulated under the New York Rental Purchase
Agreements Act, which has been in effect for 20 years. I mentioned in Buffalo and it bears repeating here today, that statute was one of the very first rental purchase specific laws to be passed in the country and since that time, 46 states, the District of Columbia, the Puerto Rico, the Virgin Islands and the territory of Guam have modeled legislation after what was done in New York here 20 years ago. Itís a model that I think, not only has worked effectively here in New York but because of that experience, has become a model for legislatures throughout the country, and elsewhere, in effectively addressing the unique needs of rental purchase consumers and the unique aspects of the business that we're in. (top)

The areas of focus of the New York Rental Purchase Agreements Act are both, I guess you might describe it as procedural and substantive, procedural meaning in my parlance full and complete disclosure of all key financial terms, transparency if you will, but not just in the contracts themselves but also in advertisements as well as on price cards in our stores. Other disclosures include new or news used, and other disclosures in regards to the terms of the transaction itself, identification of the property, the rights to that the consumer has to terminate the transaction, return the goods and then reinstate the agreement as we discussed a couple weeks ago, if at some point they choose to come back in and continue renting that same item. (top)

But the statute also provides substantive protection including grace periods on late payments, limitations on fees and other charges, early purchase options that provide signature discounts to consumers who want to acquire ownership of the property extended rights to reinstate those previously terminated agreements. I think two very important provisions that really work in conjunction with each other, strong prohibitions of and protections against unfair and deceptive and unconscionable practices or conduct by rental merchants coupled with significant private and public rights, including statutory penalties for certain violations and prohibitions to the violations of the Stateís Rental Purchase Act also constitute a deceptive trade practice under the State's Deceptive Trade Practice Law. (top)

As we've heard a couple weeks ago, from two customers who had had an unfortunate experiences with rental purchase companies out in the western part of state, what struck me as I listened to those stories, aside form the fact that it was a terrible thing to hear about and had have happened was that the law that was in place worked. The violations went were not the result of a law that didn't protect the consumers, the violations were the result of employees that at a local level making decisions that were inconsistent with the laws provisions. The consumers, both of them I think youíve heard, had a plethora of remedies under this and other unfair and deceptive trade practice in New York. In fact, I heard testimony last week and have subsequently confirmed this, that that those two matters were settle forward signature amounts of money, in addition to the merchandise being maintained by the customer and so forth. (top)

So, I think the lesson there is you know responsible merchants have an obligation to train and retrain and retrain again their employees so that those sorts of mistakes aren't made. But laws aren't written because nobody ever makes mistakes. Laws are written because mistakes are made and there needs to be the opportunity, for those who are injured by those mistakes to have redress. And that's precisely what the statute provided, and I think you heard that with remarkable clarity last week. I think that's really about all that I'll talk about from my prepared remarks. I think you all heard a lot of that last week. (top)

I do want to address a couple of issues that came up throughout the day in terms of other folkís testimony. The first speaker refereed to the negative community impacts, that businesses that youíre looking at today and identified rent-to-own as one of those. The negative community impact as a result of these businesses, opening in certain areas and particularly critical of the heavy concentration I think was her description in low income and high minority areas. But speaking for Rent-A-Center, I can tell that you our statistics belie those statements. (top)

First of all, 49 percent of our stores nationwide are located in urban areas. I think the national -- the 2000 census data indicates that somewhere over 60 percent of all Americans live in Urban areas and yet only 49 percent of our stores are locate indeed Urban areas. The other 51 percent are located in suburban and rural areas. Our New York experience is a perfect example of that. We've only been in the New York City area in the boroughs for five or six years. Prior to that we weren't doing business in New York City, in part because it's a very difficult place if you think about the merchandise that we have and the trucks and the apartments and all the complicating factors trying to get that merchandise moved around and so forth. (top)

But, at the same time, six years ago, we had 100 stores in this state. We weren't in New York City. We were in small and medium and large other towns, but it's simply not the case that we concentrate on urban areas. We concentrate on areas where our customers are who need and want our services. With respect to the racial mix and that issue was brought up as well in terms of targeting, I can, again, only speak for rent a center, but I can you that our mix of customers is roughly, I shouldn't say roughly, is nearly identical to the overall US population mix in terms of race make up. So it's simply not the fact that a disproportionate number of our customers are African American, are Hispanics or any other minority. The simple fact is we do business with people who need and want these services, and they come from all races and all walks of life. (top)

So, Assemblywoman Pheffer, you asked about an analysis that might have been done in 2001 by some entity in New York City. I can tell you that that entity was the Department of Consumer Affairs. I was involved in that and Rent-A-Center to that analysis, it was undertaken by the department looking at -- our two things really, first our prices and second, our disclosures, because at the time, unbeknownst to us and certainly as General Counsel, had a lot of egg on my face for not be knowing this, New York City hay special disclosure requirement for electronics stores, any merchant that markets and sells electronics in New York City is required, in addition to displaying their selling price, to also display the manufactured suggested retail price on this particular pro product if one exists. We were not doing that at that particular time. We are now. (top)

And so, the outcome of that investigation was, in addition to the fines, that we paid for none compliance with that disclosure requirement and now make that disclosure in our stores, New York City, and of course to no one's surprise the department found our prices are higher than what the these products are available for in retail stores, but I think it's fair to say that first and foremost, we've never said that they aren't. I think we've been very forthright and transparent with respect to the our business and why it costs more and, you know, we price our goods not on the basis of that single customer who might rent and acquire ownership 12 months later and never pay late and never have any of the service issues and we have to price our goods and services based upon doing business with all of our customers and all of their experiences taken together as one. (top)

So, the other point they would make and I think I I've talked quite a bit more about this in Buffalo, you know, what we do is so very different from retail that to make those comparisons between what we are for business services that for what you might be able to purchase those same products for from Best Buy, is really to compare apples to oranges(top)

Best Buy certainly doesn't provide the opportunity to pay over time, unless you borrow money from either them or a credit card company, this in which case that costs you money. They don't provide the services that we do, they charge extra for the delivery and installation. And there are certainly no right to terminate the transactions and return the goods when you're having some financial problems and then equally no right to come back in a month or two or three later and pick up where you left off previously so you can continue that the progress toward ownership if that is in fact the consumer's goal. (top)

I think the last couple of things I would observe in regard to other testimony that has been given today. The final speaker or the speaker before me, I think mentioned three issues that, she asserted the rent to own companies are ďnotoriousĒ for. The first was, our cash prices and how they relate to those same cash prices at retail, the second had to do repossessing without notice, and the third she stated, was misrepresenting used products as new. I would simply represent to this committee that the latter two of those three issues are fully and adequately addressed by the New York State Rental Purchase Agreements Act, both of those are violations of those acts, as we know, violations in fact do bring consequences. (top)

One of the reason, by the way, as a quick aside, I should add, that the New York statute, as well as it does, is that it has a private right of action that not only provides minimum statutory penalties but it also provides for attorneys fees so there is an encouragement to the private bar to accept these cases and pursue them. So, it's before been a very effective tool for making rental purchase merchants, reasonable and responsible and treat their customers fairly, which is ultimately what we really strive to do. (top)

We talked a little bit, two weeks ago, about consumer education. We think that consumer education is important and we would be privileged to have the opportunity to work with you all with regard to that particular issue. I know that itís important to all three of you. I've heard all three speak to that issue and I mentioned in Buffalo we've partnered with state governments and municipalities in other states before and we would be delighted and honored to do so if that's an object that you would like to pursue going forward. And then finally, of course, as you all think about 2008, we would like to be partners with you in addressing whatever concerns may be raised and need to be discussed through legislative process.(top)

CHAIRWOMAN PHEFFER: What happened to 2007?(top)

MR. KORST: Iím sorry, 2007. (top)

CHAIRWOMAN PHEFFER: Thank you. As always, you certainly do put on a bright light on the industry in a very positive and just a couple of questions. You talked about, and I have your display, which is very clear which says that it's new or it's been previously rented on and on and it talks about the monthly price, the cash price, and the sold price. How do you establish the cash price again, would you tell us? And then let's say it talks a 23 month payment, what happens in I decide and everything works out and I want to end it in 12 months, how do you compute the cash price at that time?(top)

MR. KORST: Madame Chairwoman, the first question is really answered by something that we've talked a little bit about in the past and that is, like most businesses I assume, we have an understanding of how much it costs us to be in this business. We have an understanding of what our product cost is and how much labor is going to be and how frequently the product's going to be rented and returned and how much each of those trips out with a couple of to pick up the merchandise and bring it back to the store and then get it over to our service center to have it refurbished and repaired and bring it back to our store and then try to figure out how much we have to discount that now used product because it's going to be sitting right next to the new product, and as I mentioned before in Buffalo, our customers have the option in they choose new rather than used, that's always their option so we have some internal competition within our own product mix to make sure we price those used goods in a manner that makes them attracted to consumers who perhaps want a lower priced option and so forth. (top)

We know all of those costs and so forth and so we set our prices according to what we think we need to get on particular product or products in order to maintain what I have represented to you in the past as reasonable rate of the return or profit margin. I think over the last five years we've averaged about eight percent in net profits and I think if you check the record the S&P 500's Companies have over that same period averaged 11 and a half percent. So, I think we're well within the range of reason in terms of profitability, which I think an economist would say tells that you what we charge is reflective of the cost of doing business. (top)

Maybe more informative than that long winded answer, though, is a comparison between what it costs in our business for a consumer as compared to retail, and I can tell you that, and again, I've said this before, we're completely transparent about this we make no secret about our price, our cash prices on computers and appliances is going to be about 30 percent higher than what you could buy that same product for at retail. On electronics it's going to be 15 to 25 percent higher than what you would pay at retail and on furniture we're actually competitive sometimes below the retail marketplace for those goods, and that's really an interesting macro and microeconomic set of the factor driving that. (top)

The macroeconomics are if you think about the retail marketplace today it's dominated by these huge retailers. Best Buy I think I mentioned, sells more televisions on the day after Thanksgiving than we rent in an entire year. That's just a different scale. That's a different scope and they have a different business objective. So Best Buy, Circuit City, Loweís, Wal-Mart, Samís, I think you take a look around and there aren't very many if any small electronics and appliance merchants left today, whereas when we were growing up, they were in every town. I think the same thing is true on electronics and appliances but it's a completely different picture on furniture. There really hasn't been a truly successful mass retailer of furniture and while there are national brands, there's still a tremendous amount of competition not simply within the retail marketplace, but also a lot of opportunity or lot of different manufacturers who are out there, regional and so forth supplying the goods. (top)

At the same time, furniture is such a difficult product to price or to understand the value of because it's made up of so many different things that you can have two couches that have literally the same design and they can be worth $2,000 or $3,000 different, depending upon the materials that were used to construct, is it hardwood in the frame, what's the stuffing made of, what are the covers made up of, and so forth. You can you fabric to cover a couch that cost $3 a yard and you can have fabric that cost $100 a yard. So, furniture is really subject to some different factors and influences that result in the prices being somewhat higher relative to those other two broad categories. So, that's where our cash prices would fall in relative to the retail industry. (top)

In answer to your second question, if after 12 months on a 23 months transaction you wished to terminate the transaction and purchase the goods, then at that point, we would take the original cash price, and by the way this is all dictated by the statute, we would take the originally stated cash price and subtract from that one half of the total amount of rental payments that you made up to that point. So, I don't know what the rental payment amount is on that particular card, but if it's $120 or whatever, 12 times that would be $1,440 and half of that would come off of the cash price for the early purchase option at that point. (top)

I think I mention in Buffalo, too, though, one the very popular new offers that we've started making over past couple years is a 90 day same as cash option. It's really changed the way a lot of consumers transact with us. (top)

CHAIRWOMAN PHEFFER: The same as cash?(top)

MR. KORST: 90 day, same as cash. So, a customer comes in December or January in anticipation that they are going to get a refund for their taxes so theyíll pay their ordinary ongoing rent and when that refund comes in theyíll pay the rest and instead of paying anything in addition to the cash price, that's exactly what they would pay to own that so that's become a very popular feature in our transaction as well. (top)

CHAIRWOMAN PHEFFER: Thank you. The other one is why the other people won but now we know that. How come rent-to-own have such a bad rap then? I mean, you heard the testimony two weeks ago you hear the testimony now, we have the laws, is it the few smaller ones that take advantage and the enforcement is not there? Every one of the conversations today about predatory lending puts in rent-to-own as one of the evils on the low-income people of a community. (top)

MR. KORST: I'm going to answer your question in a way they think is different than what you might expect, Assemblywoman. I think the real problem is that we all wish that families and individuals who don't have the same economic means and don't have the same credit scores as others wouldn't have to pay more for the transactions that they engage in, and our transaction is one that appeals to the customers who are in that group. As a consequences, I think we get brought into that group of industries, not really because we're in the lending or credit business because I think it's apparent that we're not, but because we are a merchant that has chosen happily to do business with people who don't have other options. (top)

And the fact that it costs more to do that transaction with us than it would if that customer had good credit and plenty of cash I think is a concern and a disappointment to many of the folks that you've heard from today and heard from in Buffalo, and I respect that. I do. I don't know what to do about it, frankly, because if the options on the table are to consider enacting legislation that would treat this transaction in the same fashion as credit sales are treated and regulated in this state, then that decision would put this industry out of business and this option would no longer exist. (top)

Calling us credit just simply means we're going to have to play by those roles and by the way, I think you all ought to take a step back and think about this, credit companies aren't doing business with many of the customers that we do business with because the laws don't permit the flexibility that they need in order to do that business with them. The Rental Purchase Laws, which were specifically designed for this unique transaction and for this customer and his or her needs, does in fact allow that flexibility. Does it recognize that that flexibility comes with some additional costs? It most certainly does. But if -- and the FTC wrote about this in 2000 in there Seminal Report on the rent-to-own industry, there is no barrier, there's no bar to a credit company opening up a store and lending money to make these purchases to the exact same customer we're serving and yet we can all look around and see that they're not there, right? (top)

I think a logical person has to assume that they're not because they don't want the business, but because under the restrictions that they have to operate under or that they've chose to operate under, they don't have a meaningful choice in being able to serve that customer with that transaction with these goods. And I think that really leads to a broader point. I mean, I heard some conversation early on about deregulation and what a deleterious effect it's had on consumers, particularly in some of these low income areas and I'm no banker and I'm in the an economist, but I am somewhat keen observer of how the marketplaces work, and my suspicion is that banks weren't lending money before. In fact, to individuals with bad credit and little amounts of cash. (top)

The deregulation has made those transactions, those options now available, and I think the demand is clear whether it's for check cashing services or, you know, deferred deposit or short term loans of some sort of another, the demand is clearly there. The question and challenge I think, for you all and for folks who are in those industries and for folks like me who think about these issues a lot is, how do you balance the desire to make those transaction, though options available with sufficiently strong consumer protection that ensures that consumers who have the need are treated fairly by lenders who are responsible? And that's the challenge. (top)

I think we've proven turning back to the rent-to-own piece and Rent-A-Center in particular, we've been in business here for 25 years and I being we've proven consistently that that we are driven by customer service. That this is a highly competitive industry, that we loose customers to our competitors all the time and that if we don't continue to enhance what we offer and how we offer T we're going to lose that customer. I think that's the broad reason why we're brought into these conversations, because people need our goods, they want our goods and our transactions are more expensive and I think that's that disappointments a lot of people who care a great deal about these consumers so I hope that answered your question. (top)

CHAIRWOMAN PHEFFER: Yes. Well, it gave me -Ė there was one and I donít Ė I remembered in Buffalo that the competition between the companies, there is one thatís much cheaper?(top)

MR. KORST: Yes there is. (top)

CHAIRWOMAN PHEFFER: Who is it?(top)

MR. KORST: Aaronís Rents, which has come into the New York State markets, really I think over the last 4 or 5 years. They're a relative new comer and they're offering the same transaction as we do, but if you were to look at their total of payments, theyíd probably be about 25 to 30 percent less than what customers could get the same goods for from us if acquiring ownership was there goal and they don't do any credit checks, they serve the exact same customers that we serve. There are others in the marketplace who are, by the way, mimicking that transaction and that pricing parameter as well. So, is that an emerging, I say emerging they've got 1,200 stores they're in about 40 states, including New York. I think that's a new model, I think people are look at that and consumers taking advantage of that being in the marketplace. (top)

But again, the Federal Trade Commission, not known as a softie on consumer protection, observed some time ago that this I highly competitive business, all you need is a truck some furnisher and appliances and you can compete with Rent-A-Center and you can do it all day, take our customer away. I can tell you that in marker after market, people do that our competitors do that. (top)

By the way, it is a little bit of a misrepresentation if I led you to believe that our customers don't have any choices. It is the case that some don't, but many of our customers have credit, it's just limited. And so they protect that credit for emergencies or back to school when they need clothing and books and so forth, and then others choose not to use credit. They'd rather -- maybe they've had some problems before and they don't want to get into the credit trap again if you will, so they use our transaction as a way of getting the things that they need, and yet not having to enter into a debt transaction. (top)

It's also I think an economically thoughtful transaction and I'll give you one instance, an example of that. A family of 4 will spend more every week at the laundry mat than they would renting a full size washer and dryer from one our Rent-A-Center stores. Yet after 12 months they wouldn't own the Laundromat, they would own the washer and dryer that they had rented from us. And by the way, how different is the convenience factor? So I think our customers -- our experience with our customers at any rate has been that there very thoughtful and understanding about what they're doing with their money, and make decisions every day that they think are in their best interests and we witness that time and again. (top)

CHAIRWOMAN PHEFFER: Thank you. (top)

CHAIRMAN TOWNS: Thank you. Mr. Korst, who do You have to register with when you set up shop, is there a registration process in order to say we're Rent-A-Center and we're here, because --(top)

MR. KORST: There is no licensing required in this state to be in a rental purchase or rent-to-own business. (top)

CHAIRWOMAN PHEFFER: The city neither?(top)

MR. KORST: No. There are Ė Iím sorry, thatís an excellent point. There is no statewide licensing requirement. There are a number of city requirements including New York City, Iím not familiar with the others that might be out there but there are certainly those communities -- municipalities that require some licensing and registration. But on the state level, there is no formal process for registering store by store and obtaining a license to offer these transactions in that capacity. (top)

CHAIRMAN TOWNS: The reason why I asked that is that is that, I know that with us making the call to have these discussions that weíve had folks would have come in, it's not like we've had to find someone and subpoena them and drag them in. I know that we've had we've increased our understanding of some things in some places and maybe there are some bad guys that are out there that are doing business similar to the stories that we've heard within check cashing industry, that there are people who are licensed and there are people who are unlicensed and where we can't find those unlicensed, a lot of opportunity is there for unscrupulous activity. I know that I feel much more comfortable about Rent-A-Center than I did in the past. But I think, again, it goes to making sure that the consumers are aware of what they're going into. (top)

There are opportunities that I take to rent Short term, whether it's when we're traveling and we rent a car, but certainly I would not rent to own a car. When I travel places and rent golf clubs, for convenience and those types of things. I do in having these conversations with you, have much more idea about the industry and the fact that there are a number of legitimate reasons to use a rent a center. (top)

MR. KORST: Mostly itís about access. If you think about the examples that you just gave, you needed access to a variant on what you already have in your life, you have a car but you're in Florida and so you don't want to have to buy another car but you but you need access and there is Hertz who is willing to provide that. You need golf clubs, youíre out of town, and you donít want to take your clubs on the plane, same option. Access is a little different for our customers. Yes, some are accessing us for the same reasons and having the same results, but access to our customer is, I need this, I want this, and these companies are willing to do business with me even though I have bad credit and I don't have very much cash, you know, and there's the access. That's the switch that rental provides that other transactions just don't.(top)

CHAIRMAN TOWNS: Well, my suggestion is that we continue to look and see if there are others out there who donít have the same portfolio that Rent-A-Center is having, because it is problem out there, and we're hearing about people getting themselves in trouble, and we need to make sure that again, we can make sure that people know what they're going into in getting that information, but also working with credit unions and CFIs and others to make sure that we can more readily make their products available as well too so that people know they can go and have access to emergency funds or be able to go into low credit loans in and those types of things to make sure that the whole gamut is available to people as they increase there knowledge. (top)

CHAIRWOMAN PHEFFER: Just before the Assemblywoman has Ė what do you have to do in New York City? I mean, the state law governs what happens in New York City, the way you have to advertise and everything else, so what else do they make you do in New York City?(top)

MR. KORST: On electronics products, in addition to the disclosures that's required for all merchants retail and otherwise rental and so forth, you have to also display the manufacturers suggested retail price when the product is new. (top)

CHAIRWOMAN PHEFFER: That's it?(top)

MR. KORST: Thatís the only addition yes. (top)

CHAIRWOMAN PHEFFER: So you donít actually register as a business?(top)

MR. KORST: Oh, no I'm sorry. I apologize I thought you are referring to what additional regulatory burdens or what were there. No we do have to, gosh, we have to obtain licenses, I think probably 3 or 4 licenses, depending upon, I mean, I think there's the used upholstered and new retail and then new electronic and I think that's they've got furniture, appliance, electronic licenses and then they've got the used furniture license and then we've also we also have to have a refurbishment license because we refurbish all of our products. I think we have four or five licenses for each store. (top)

CHAIRWOMAN PHEFFER: Run into budget problems. (top)

ASSEMBLYWOMAN PEOPLES: Is there a process like that that you have to go through in Buffalo?(top)

MR. KORST: I'm in the sure, Assemblywoman. (top)

ASSEMBLYWOMAN PEOPLES: I was just asking him is there a process that you have to go through similar to the one you do in New York City for the City of Buffalo or youíre just governed by the State Law in Buffalo?(top)

MR. KORST: Iím not sure but I'd be happy to check for you. (top)

ASSEMBLYWOMAN PEOPLES: Okay. I guess to a certain extent -- let me just ask you this. You only represent Rent-A-Center sure in the here representing all the rent-to-own industry, you're just representing Rent-A-Center.(top)

MR. KORST: That is correct, although I should say that Rent-A-Center is a member of both the New York State Rental Leaders Association and as well as the National --(top)

CHAIRMAN TOWNS: What that organization, say it again?(top)

MR. KORST: Itís called the New York State Rental Leaders Association. (top)

ASSEMBLYWOMAN PEOPLES: I didnít realized there was one of those and quite frankly I wonder whey they havenít participated in this hearing?(top)

MR. KORST: I think they left that up to me. (top)

ASSEMBLYWOMAN PEOPLES: So you are speaking for all the rent-to-own centers.(top)

MR. KORST: I guess in a matter of speaking, I would be. I should also be clear, that association really has about, including all of our stores, only about two thirds of the total store count here in the state and so there's probably hundred stores that are owned and operated by business people who are not members of the association.(top)

ASSEMBLYWOMAN PEOPLES: Okay. (top)

CHAIRWOMAN PHEFFER: We just have the next speaker I think right?(top)

ASSEMBLYWOMAN PEOPLES: No. A written testimony that was submitted from the association. (top)

MR. KORST: From the National Association. (top)

ASSEMBLYWOMAN PEOPLES: The reason why I asked you that, because I think I agree with Assembly Member Towns in many ways that, and Pheffer. In your testimony, it seems as though your business is pretty much governed on some ethical principles of just use the free market to make money in America everybody has an opportunity to do. Although, you know, there's still are so many problems with consumers and I think while its easy to say if you want to rent a car to go on the trip you rent a car to go on trip but a lot of people use your services to purchase or to rent things that they can't afford. (top)

I mean, people don't need to have giant TV screens when they're don't have the ability to put away money to send their kids to college. So, I mean I know that's not your business responsibility, but somehow morally and ethically it's an issue when there are 10 rent-to-own centers or Aaronís storeís or Rent-A-Centers on Bailey Avenue in a community where people don't have a lot of resources to buy a house, either you know from a good reputable real estate agent or you know one of the unscrupulous ones. They don't have the ability to purchase the things they need for a decent quality of life, but because you're there and even though it costs them more money because they want to have access to what seem people think is the American dream to have bigger better appliances and bigger better electronics, you know, they're renting things from you that they cannot afford. (top)

Even -- and plus the fact that they can't afford it they're actually paying 30 percent more than it if they went to another rental center. While I certainly do respect your right to be in business and I have done a little bit of research on the state law that's in place, I still have some real grave concerns about where are these places are located and I know you mentioned that you have a lot of these places that are in suburban and rural communities but do you have any in Clarence?(top)

MR. KORST: I canít answer that. (top)

ASSEMBLYWOMAN PEOPLES: Clarence New York. I really doubt that you have any in Clarence. I doubt that you have any -- these are very affluent suburban communities I don't think that you have them there. (top)

So I think that in some ways your business while legitimate it is certainly targeted to a population of people who have not yet reached the American dream still are going to try to force their way into it whether they can afford it or not and it's profitable for you. But for those people who do that, it's not profitable for them, and as a result of it, it makes our job more difficult as Legislatures. I think it makes governments job more difficult to do what it's designed to do and that's to take care of the needs of the people because we're providing for some needs people who really should be able if they when they really should be trying to take care of their families. That's just a personal editorial opinion. That's not a question so you don't necessarily need to respond. (top)

MR. KORST: That's all right. If you wouldn't mind I would like to just point out one thing, that big screen televisions are less than 7 percent of our overall business. Beds, couches, for kids to sit and watch TV or do homework on, computers, so they can keep up in school, appliances, so that the food can stay hold cold and the clothes can be washed, that's the bulk of our business. Luxuries of the sort that -- I mean, it's a popular myth and it's easy to wave it and be critical of it, but at the end of the day, that's a very small part of our business, furthermore, if a customer under one of our transactions truly can't afford the product and it is a luxury of the sort that you've just described, they have the option to return that good at any time and have no further payment obligations. (top)

ASSEMBLYWOMAN PEOPLES: Well, if they were really sophisticated enough to understand that, they wouldn't have came to get it from you. Because I don't own big screen TV, I can't afford it. I think that these conversations have been very helpful to me I hope they have been helpful to you all as well. I know that nothing's perfect in this world, but I do think that these issues are important that they're very timely and I hope that there is some recommendations that come out of these meetings that will help people who are not sophisticated enough to make the right decision for the small amount of resources that they have available to them to use, if from government assistance or be it from working low income jobs where you know, they're just barely making it so. That's my final comment. Thank you very much. (top)

CHAIRWOMAN PHEFFER: Thank you again and I know as we continue this we know that we can count on you to be available for us. We thank you for your testimony both times. We're very enlightening and we certainly appreciate it. (top)

MR. KORST: Thank you and I will be available for anything that youíll need. (top)

 

 

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