U.S. Supreme Court Denies Rent-a-Center Hearing in 2003 Suit

The N.J. decision (CED March 17 p12) reversed a lower court dismissal of Hilda Perez’s suit. She claimed in a 2003 action that RAC violated the N.J. Retail Installment Sales & Consumer Fraud Act, which caps at 30% a year the interest on installment deals. Perez alleged she paid $8,000 toward what was about 80% interest on furniture, a TV, a washing machine and other appliances. The U.S. Supreme Court decision returns the case to N.J. Superior Court.

The Perez suit, not certified as a class action, seeks to include aggrieved customers back to 1999 and cover 255,000 rent-to-own contracts, the chain said. Thanks to the U.S. Supreme Court decision “a loss with respect to this matter is probable,” the company said in a statement. RAC will continue a “vigorous defense” in the case, but is “exploring opportunities to resolve it on reasonable terms,” the chain said. RAC N.J. stores now follow N.J. law. “We've changed our business practices in New Jersey to comply with the state law,” CEO Mark Speese told analysts in a Tues. earnings call.

RAC thought its stores obeyed N.J. law, having paid $60 million to settle 3 suits there in 1999. The largest of the settlements -- $48.5 million -- involved Dawn Robinson, who alleged that in 1994 she leased a 25” TV on a plan calling for $28.21 weekly payments for 69 weeks. The suit said she was hit with a $5 per week late charge and the total rose to $2,000. A N.J. Superior Court judge later held that RAC stores in the state charged “unconscionable fees and interest” in violation of state consumer fraud laws and in 1997 awarded Robinson and other plaintiffs more than $90 million.

RAC expects final Cal. Superior Court approval Feb. 21 of a $4.95 million payment to settle charges it broke Cal. wage and hours laws. RAC expects to pay the settlement, expensed in Q3, within 14 days of court approval, it said. It reached a preliminary settlement in Aug. with former store managers Jeremy Burdusis and Israel French and other employees. The proposed agreement was sent to 6,250 former and current employees who worked for the chain since Aug. 1998. RAC also expected to start funding a $7 million “restitution account” in Q2 to settle a suit by Cal. Attorney Gen. Bill Lockyer claiming it didn’t disclose its rent-to-own program’s true costs, RAC said. Lockyer also alleged that RAC used deceptive ads to pitch memberships in its Preferred Customer Club. RAC is giving the state another $7 million to enforce consumer protection laws. RAC is required to make full or partial refunds to thousands of Cal. consumers who rented or bought CE products, PCs and appliances after Nov. 1, 2004. RAC funded the agreement in Q3.

Meanwhile, RAC’s Q4 net loss came despite a revenue rise to $656 million, from $583.2 million a year earlier. Same- store sales grew 1%. While RAC completed its purchase of 784-store Rent-Way during the quarter, the new outlets had minimal impact on earnings, company officials said. RAC merged 149 former Rent-Way locations with its outlets, Speese said. That figure seems at odds with Speese’s Aug. comments when the acquisition was announced that the number of Rent- Way stores that might close wouldn’t be a “very large number at all.” (CED Aug 9 p5). The Rent-Way stores are expected to add 1-2 cents to earnings this year, 20 cents in 2007. Rent-Way outlets merged averaged $40,000 monthly revenue, while those kept averaged $60,000, company officials said. About 90% of the acquired stores are expected to match RAC’s chainwide $70,000 average for monthly revenue by late 2009, Speese said. The merger will save RAC $25 million annually, he said. The majority of Rent-Way operations have been combined at RAC’s Plano, Tex., hq. About 20 employees remain at Rent-Way’s former Erie, Pa., hq, expected to close within months, Speese said.

RAC is shifting its stores to flat-panel TVs, which are rapidly replacing CRT-based rear projection models at “a higher price,” Pres. Mitchell Fadel said. RAC is carrying LCD TVs ranging from 26W (Toshiba) and 32W (Toshiba, LG) to 40W (Sony) and plasma starting at 42W (Philips). Microdisplay-based rear projection sets in stock include a Sony 60W LCoS-based model and a Philips 60W DLP set. It also is fielding Hitachi 51W and 57W CRT-based sets.

RAC ended the year with 150 financial services locations offering payday loans. Those opened so far are built within an existing RAC location or adjacent to it with a separate entrance. The store-within-store format has performed better and costs less to build -- $30,000-$40,000 vs. $60,000, Speese said. The number of outstanding loans also is higher with the in-store format, he said. About 20-25% of financial services customers also do business at RAC, officials said. RAC plans to add financial services to 200-250 more stores this year, he said.