Legislature(1999 - 2000)
03/15/1999 03:15 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
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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