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.