Legislature(1999 - 2000)

03/15/1999 03:15 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                                                                                
HB 128 - LEASE-PURCHASE OF PERSONAL PROPERTY                                                                                    
                                                                                                                                
Number 0395                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG announced the committee's next order of business                                                              
is HB 128, "An Act relating to lease-purchases of personal                                                                      
property."  He invited the bill sponsor, Representative Murkowski,                                                              
to introduce the legislation.                                                                                                   
                                                                                                                                
Number 0415                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI said the committee members might wonder                                                                
why this subject is being addressed.  The rent-to-own or                                                                        
lease-purchase business is relatively new to the state and there                                                                
are not that many businesses here.  However, it is a strongly                                                                   
growing business nationwide; there are approximately 8,000 stores                                                               
across the country.  Representative Murkowski surmised that it is                                                               
just a matter of time before more such businesses are seen in                                                                   
Alaska.  Currently there is no uniformity for those consumers                                                                   
interested in renting personal property through a rent-to-own store                                                             
in terms of disclosures.  Representative Murkowski explained the                                                                
rent-to-own business mainly consists of consumer products like                                                                  
stereo equipment or washers and dryers.  It is typically a                                                                      
less-than-four-month rental allowing the consumer some flexibility                                                              
in terms of obtaining something immediately without a significant                                                               
initial cost.  House Bill 128 specifically requires up-front                                                                    
disclosure from the lease-purchase business so that the consumer                                                                
knows in advance what the required payments would be, the number of                                                             
payments, and when ownership would be achieved.  The legislation                                                                
before the committee is patterned after model legislation from                                                                  
other states; 44 states have adopted legislation.  Representative                                                               
Murkowski indicated an industry member was present to answer                                                                    
specific industry-related questions.  She additionally noted this                                                               
legislation would be a new chapter in the Alaska Statutes; these                                                                
purchases do not fall within the Alaska Retail Installment Sales                                                                
Act [AS 45.10] or within the leases section of the statutes.  There                                                             
really are not any statutory guidelines if a person needs to bring                                                              
an action against someone in the rent-to-own business.                                                                          
                                                                                                                                
Number 0647                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG asked why this doesn't fit into the Alaska Retail                                                             
Installment Sales Act.                                                                                                          
                                                                                                                                
REPRESENTATIVE MURKOWSKI replied that a lease-purchase is basically                                                             
a four-month or less rental agreement allowing the person the                                                                   
option to purchase at the end of the agreement.  With retail                                                                    
installment, someone is basically purchasing on credit; with                                                                    
lease-purchase, it is a rental until the person makes the decision                                                              
that he or she wants to purchase at the end.                                                                                    
                                                                                                                                
Number 0720                                                                                                                     
                                                                                                                                
BRADLEY W. DENISON, Senior Vice President and General Counsel,                                                                  
Rent-a-Center, Incorporated, came forward to testify.  He said                                                                  
Rent-a-Center is the largest rent-to-own company in the United                                                                  
States; it has approximately 2,100 stores with stores in all 50                                                                 
states.  Mr. Denison described that leases of one week or one month                                                             
are most common, although the definition of rent-to-own in this                                                                 
legislation and most other states' is a lease of four months or                                                                 
less.  A customer at a rent-to-own store fills out a very short                                                                 
application that mainly asks for name, address, employer and                                                                    
several personal references.  If approved, the person pays one                                                                  
week's rent which would be, for example, between $5 and $10 for a                                                               
20-inch television.  The company delivers the item to the customer.                                                             
He noted Rent-a-Center does not charge for delivery.  At the end of                                                             
the first week the customer can either continue to rent or return                                                               
the item.  If returned, Rent-a-Center picks up the item without                                                                 
charge.  If the person continues to rent, Rent-a-Center provides                                                                
all service for the merchandise during the terms of the rental                                                                  
including "loaner" merchandise if necessary.  At the end of a                                                                   
predetermined rental period the customer automatically becomes the                                                              
owner of the goods.  This period might be 70 or 78 weeks.  Mr.                                                                  
Denison noted Rent-a-Center has a very diverse customer base                                                                    
ranging from executives on temporary assignment to working people                                                               
unsure of the future.  In some cases Rent-a-Center provides a                                                                   
service to people without credit or access to credit, allowing them                                                             
to obtain a major appliance.                                                                                                    
                                                                                                                                
Number 0870                                                                                                                     
                                                                                                                                
MR. DENISON indicated Rent-a-Center's customers always have other                                                               
alternatives like saving or buying used, but may have had bad                                                                   
experiences with purchasing used items.  Thirty-one percent of                                                                  
their customers have household incomes of $36,000-plus on a                                                                     
nationwide average.  Mr. Denison commented their "bread and butter"                                                             
customer is generally a blue collar worker who wants something                                                                  
extra like a big screen television in his or her life.  In Alaska,                                                              
Rent-a-Center's transactions are considered leases, not retail                                                                  
installment sales because Rent-a-Center's customers are never                                                                   
obligated to pay past that first period.  The Alaska Retail                                                                     
Installment Sales Act and most other states' Acts have a basically                                                              
two-pronged approach to determining whether a lease is a sale:  1)                                                              
a customer signs an agreement obligating him or her to pay the                                                                  
value of the goods; 2) the customer can get the goods at the end                                                                
for no or nominal consideration.  Even though it's structured as                                                                
lease, it would be considered a sale.  Because Rent-a-Center's                                                                  
customers never obligate themselves to pay more than one week or                                                                
one month, these are not considered retail installment sales under                                                              
Alaska law.  Mr. Denison noted, as Representative Murkowski had                                                                 
said, that HB 128 provides a number of consumer protections.  The                                                               
disclosure provision is probably the most important; it would                                                                   
ensure that all rental dealers are providing customers with the                                                                 
information needed to make informed decisions.  The legislation                                                                 
also provides for advertising disclosures so that companies have to                                                             
disclose certain information about the transaction in any                                                                       
advertising.                                                                                                                    
                                                                                                                                
Number 0997                                                                                                                     
                                                                                                                                
MR. DENISON indicated, additionally, certain prohibitions are                                                                   
placed on rental dealers.  They would be prohibited from taking                                                                 
confessions of judgement, negotiable instruments that could be                                                                  
cashed later, wage assignments, or Alaska Permanent Fund Dividend                                                               
assignments.  Dealers would also be prohibited from breaching the                                                               
peace or obtaining an agreement to enter the customer's home.  Mr.                                                              
Denison indicated most of Rent-a-Center's customers don't use their                                                             
services to buy merchandise.  He stated a typical lease averages                                                                
four months and that only 25 percent of their leases go full term.                                                              
On average, his business's inventory goes out 2.5 times.  Mr.                                                                   
Denison agreed they do charge more than retail.  They do so because                                                             
their expenses are higher:  delivery costs, service costs, the cost                                                             
of allowing someone to take merchandise for six months and return                                                               
it no questions asked.  He indicated Rent-a-Center thinks Alaskan                                                               
consumers, in order to make this practice consumer-friendly, need                                                               
legislation detailing what information and services dealers are                                                                 
required to provide.  He stated Rent-a-Center thinks HB 128 does                                                                
this, and does it adequately.                                                                                                   
                                                                                                                                
Number 1085                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO referred to Section 45.35.030(b)(3) of HB 128                                                             
["(3) the reasonable costs of picking up and redelivering the                                                                   
property if the lessor has picked up the property from the                                                                      
consumer; and"].  He asked what Mr. Denison's company charged to                                                                
pick something up.                                                                                                              
                                                                                                                                
MR. DENISON stated his company did not charge.  He commented there                                                              
is a measure of practicality that enters into any transaction.  If                                                              
a customer doesn't want the item or can't afford the next payment,                                                              
Rent-a-Center wants to pick up the merchandise and be done with it                                                              
so that the customer would be comfortable entering into a future                                                                
transaction.                                                                                                                    
                                                                                                                                
Number 1135                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG asked about the level of delinquency.                                                                         
                                                                                                                                
MR. DENISON replied it is very, very small.  He noted it is done by                                                             
store and he does not have those exact numbers.  Below 10 percent                                                               
of their accounts are delinquent.  In response to the chairman's                                                                
comment about the stereotyped "thug" image of Mr. Denison's                                                                     
industry, Mr. Denison said he supposes that may have been true of                                                               
some dealers at some point in the industry's history but he thinks                                                              
the vast majority of rental dealers have realized the right way to                                                              
do business, and the way to keep a business going perpetually and                                                               
profitably, is to absolutely take care of one's customers.  Mr.                                                                 
Denison stated he is very proud of his company's customer record:                                                               
his company and most of the other companies belonging to their                                                                  
national association representing almost 4,000 stores voluntarily                                                               
follow the Fair Debt Collection Practices Act [15 U.S.C. Sec. 1692]                                                             
even though that doesn't apply to their industry.  He commented                                                                 
some bad media regarding a few cases exists, but noted that ignores                                                             
thousands and thousands of transactions with very satisfied                                                                     
customers.                                                                                                                      
                                                                                                                                
Number 1248                                                                                                                     
                                                                                                                                
REPRESENTATIVE HARRIS asked how long the rent-to-own business has                                                               
been operating in Alaska.                                                                                                       
                                                                                                                                
MR. DENISON apologized that he didn't know.  He explained                                                                       
Rent-a-Center has been recently acquired by a company owning a                                                                  
store in Alaska.                                                                                                                
                                                                                                                                
REPRESENTATIVE HARRIS indicated he had referred to the                                                                          
lease-purchase philosophy, not a specific business, commenting he                                                               
has certainly dealt with lease-purchase in the equipment business.                                                              
Representative Harris confirmed from Mr. Denison that this                                                                      
legislation would give some legal parameters to this type of                                                                    
business as far as state law goes, to deal with repossessions or                                                                
just business practices.  He further confirmed that Rent-a-Center                                                               
is simply looking for some uniformity nationwide.                                                                               
                                                                                                                                
Number 1308                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI added that the lease-purchase companies in                                                             
Alaska have been receptive to what is being proposed here:  that                                                                
there be some uniformity within the disclosures.  It not only                                                                   
provides protection for the consumer, but also for those in the                                                                 
industry.                                                                                                                       
                                                                                                                                
CHAIRMAN ROKEBERG confirmed that Mr. Denison, as general counsel,                                                               
had looked at the contract used by his company's firm in Alaska.                                                                
The chairman asked how this legislation would modify that current                                                               
contract.                                                                                                                       
                                                                                                                                
MR. DENISON indicated he had not done a line by line analysis, but                                                              
said he didn't believe the legislation would substantially modify                                                               
that agreement, except that it would allow them to provide                                                                      
automatic ownership of the merchandise at the end.  In response to                                                              
the chairman's comment about the grace period, Mr. Denison said he                                                              
had omitted the reinstatement provision from his testimony.  He                                                                 
explained the legislation provides a reinstatement provision:  a                                                                
customer can terminate the agreement, giving up the goods, but has                                                              
the option to resume within certain time frames.  The company would                                                             
have to disclose these parameters in its rental agreement, as well                                                              
as the early purchase option formula.                                                                                           
                                                                                                                                
Number 1423                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG asked if he was correct in thinking there is no                                                               
statutory grace period required in the state of Alaska.                                                                         
                                                                                                                                
MR. DENISON agreed; he believes there is no law specifically                                                                    
regulating rental-purchase.                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG asked Mr. Denison to explain the grace periods of                                                             
two and five days.                                                                                                              
                                                                                                                                
MR. DENISON replied that if a customer calls the rental store                                                                   
requesting the merchandise be picked up within that time period,                                                                
then the customer has the right to reinstate his or her agreement                                                               
for 21 or 45 days without losing his or her place.  The 21 or 45                                                                
days is determined by how long the customer has rented the goods.                                                               
If someone has rented for six months and calls within the five day                                                              
period on a monthly agreement, Rent-a-Center will pick up the                                                                   
merchandise and the customer can pick up on a newer rental                                                                      
agreement, receiving six month's worth of credit, so to speak.                                                                  
                                                                                                                                
CHAIRMAN ROKEBERG confirmed this bill provides a grace period that                                                              
is not currently in law, although it could be company policy.                                                                   
                                                                                                                                
Number 1487                                                                                                                     
                                                                                                                                
MR. DENISON agreed.  All the company is asking is that the customer                                                             
inform the company and allow it to pick up the merchandise, and the                                                             
company will let the customer pick up where he or she left off.                                                                 
Economically, it is a good deal for the customer.                                                                               
                                                                                                                                
CHAIRMAN ROKEBERG asked how Mr. Denison would characterize this                                                                 
legislation:  Is this a consumer protection bill or a pro-business                                                              
bill?  The chairman questioned why Mr. Denison's company is                                                                     
supporting the legislation.                                                                                                     
                                                                                                                                
MR. DENISON responded he believes it is a very pro-consumer bill.                                                               
The reason Rent-a-Center is promoting this legislation is because                                                               
it and members of the Association of Progressive Rental                                                                         
Organizations believe taking care of the customers is the way for                                                               
a business to last and prosper.  They believe having uniformity in                                                              
the information available to the customer between different rental                                                              
businesses, so the customer can compare, is the right way to do                                                                 
business and will ultimately benefit the industry.                                                                              
                                                                                                                                
CHAIRMAN ROKEBERG noted the committee would next hear testimony                                                                 
from John Wagner.                                                                                                               
                                                                                                                                
Number 1573                                                                                                                     
                                                                                                                                
JOHN W. WAGNER, President, Far North Venture, Limited, d.b.a.                                                                   
Premier Rental Purchase, testified via teleconference off-net from                                                              
Anchorage in support of HB 128.  Mr. Wagner stated he has had                                                                   
rental stores in Anchorage and Fairbanks since October 1985.                                                                    
                                                                                                                                
CHAIRMAN ROKEBERG questioned how this would affect Mr. Wagner's                                                                 
operation.                                                                                                                      
                                                                                                                                
MR. WAGNER replied the only thing he noticed different from his                                                                 
business's current practices is the holding the items for 45 days                                                               
- his business holds it longer.  He indicated he echoed Mr.                                                                     
Denison's comments about retaining the customers, stating, "The                                                                 
last thing I want to do is go to someone's house and pick up the                                                                
merchandise and not let them have it back.  ... We definitely work                                                              
with people, especially with Alaska being a transient state -                                                                   
seasonal workers, paychecks sporadic, ... people that work in the                                                               
fishing industry, the construction industry ... We hold stuff for                                                               
people until they get back on their feet, you know, that sort of                                                                
thing."  Mr. Wagner commented he still has customers today that he                                                              
had the first month he opened, noting his business has a pretty                                                                 
loyal following.                                                                                                                
                                                                                                                                
Number 1639                                                                                                                     
                                                                                                                                
REPRESENTATIVE SANDERS asked if there is a current problem in                                                                   
Alaska bringing forward this legislation or if this is just a                                                                   
preemptive strike.                                                                                                              
                                                                                                                                
MR. WAGNER responded he knew of nothing derogatory regarding this                                                               
legislation, at least in his operation.  He commented Rent-a-Center                                                             
is a large and very good operation, noting its stockholders have                                                                
been around the business for a long time.  Mr. Wagner indicated he                                                              
thinks it is just good business practices; something he would like                                                              
to see, but did not have the resources to put together himself.                                                                 
                                                                                                                                
REPRESENTATIVE MURKOWSKI addressed Representative Sanders' concern,                                                             
stating there is not a current problem within the industry from                                                                 
what they understand; it is more of a preemptive strike recognizing                                                             
the likelihood that the numbers of these business will be                                                                       
increasing in Alaska as they already have in the Lower 48.  She                                                                 
noted the up-front full disclosure requirement is the primary                                                                   
reason for the legislation's introduction.                                                                                      
                                                                                                                                
Number 1703                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG asked Mr. Wagner if the large military population                                                             
in both Anchorage and Fairbanks is a significant part of his                                                                    
clientele.                                                                                                                      
                                                                                                                                
MR. WAGNER replied it had been when he opened up in Fairbanks.  He                                                              
described, however, that the military base now allows "in-home                                                                  
layaway," so his store there no longer has the military presence it                                                             
used to.  Mr. Wagner noted he thinks this is one of the only                                                                    
military bases in the country with this practice.  He clarified for                                                             
the chairman that "in-home layaway" allows military personnel to                                                                
purchase goods from the "PX" or base store, take the goods home,                                                                
and payments are automatically taken out of the military member's                                                               
check.  In response to the chairman's comments, he noted his                                                                    
business's name is Premier Rental Purchase and that the committee                                                               
has received a letter from him and a copy of his rental agreement.                                                              
                                                                                                                                
CHAIRMAN ROKEBERG confirmed Mr. Wagner would not have to modify his                                                             
rental agreement as a result of this legislation.  The chairman                                                                 
questioned how Mr. Wagner currently handled the grace period with                                                               
his clients.                                                                                                                    
                                                                                                                                
MR. WAGNER replied it depends on the situation.  Normally their                                                                 
delinquency runs anywhere from 6 to 11 percent.  They play                                                                      
"catch-up" during January because people tend to overspend during                                                               
the holidays.  He commented his business works with the customers.                                                              
Mr. Wagner indicated his business would not have to change anything                                                             
if this legislation passes.                                                                                                     
                                                                                                                                
Number 1799                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG questioned whether anyone else wished to testify                                                              
on HB 128.  The chairman asked Representative Murkowski if she had                                                              
contacted any of the music stores in the Anchorage area to see if                                                               
they had any interest in this legislation.                                                                                      
                                                                                                                                
REPRESENTATIVE MURKOWSKI responded she did not believe so.                                                                      
                                                                                                                                
MR. WAGNER indicated he believed Mr. Denison had referred to APRO,                                                              
the Association of Progressive Rental Organizations.  He commented                                                              
some local music stores are renting musical instruments to own but                                                              
he does not believe the stores are members of APRO, and it is a                                                                 
very small percentage.                                                                                                          
                                                                                                                                
CHAIRMAN ROKEBERG stated his intention to close the public hearing                                                              
on HB 128, noting to Representative Murkowski he had a concern that                                                             
these music stores would be impacted and might not be aware of                                                                  
that.  He commented this is the legislation's only committee of                                                                 
referral.                                                                                                                       
                                                                                                                                
REPRESENTATIVE MURKOWSKI stated she would be happy to contact music                                                             
stores that are rent-to-own businesses and solicit their comments.                                                              
                                                                                                                                
Number 1866                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG indicated he was in agreement with that.  He                                                                  
asked the will of the committee.                                                                                                
                                                                                                                                
REPRESENTATIVE HALCRO indicated he was satisfied with                                                                           
Representative Murkowski's presentation of the legislation, felt                                                                
there was time in the legislation's progress for possible input                                                                 
from those music stores, and was in favor of moving the legislation                                                             
because he thinks it is a good, pro-consumer bill that creates a                                                                
level playing field.                                                                                                            
                                                                                                                                
CHAIRMAN ROKEBERG confirmed there were no further comments.                                                                     
                                                                                                                                
Number 1910                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO made a motion to move HB 128 out of committee                                                             
with two attached zero fiscal notes and individual recommendations.                                                             
There being no objections, HB 128 moved out of the House Labor and                                                              
Commerce Standing Committee.                                                                                                    

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