Looks LIke I'm Getting Out of the Business Just in Time

[Blastoderm55]

Texas Democrat Harold Dutton Introduces Rent to Own Price Cap

The proposed legislation would cap the total amount paid by a consumer in Texas under a Rent to Own agreement to cash price plus 15%.

Texas State Representative Harold Dutton Jr. (D) has introduced House Bill 909, RTO industry killer legislation that would cap the total amount to be paid by a consumer under a rental-purchase agreement at 15% above the cash price.

Dutton has long been an opponent of Rent to Own mortgage contracts.

Dutton represents District 142 which includes parts of Houston. He soundly defeated his last opponent, Republican Mathew Marones, by capturing 80% of the vote in his district.

Text of proposed legislation follows:

A BILL TO BE ENTITLED

AN ACT relating to a cap on the total amount to be paid by a consumer under a rental-purchase agreement.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subchapter F, Chapter 35, Business & Commerce Code, is amended by adding Section 35.735 to read as follows:

Sec. 35.735. CAP ON TOTAL AMOUNT TO BE PAID BY CONSUMER.

The total amount to be paid by a consumer to acquire ownership of merchandise under a rental-purchase agreement may not exceed an amount equal to the sum of:

(1) the cash price of the merchandise; and

(2) 15 percent of the cash price of the merchandise.

SECTION 2. The change in law made by this Act applies only to a rental-purchase agreement entered into on or after the
effective date of this Act. A rental-purchase agreement entered into before the effective date of this Act is covered by the law in effect on the date the rental-purchase agreement was entered into, and the former law is continued in effect for that purpose.

SECTION 3. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2007.

...developing

[Snyder_TigerFan]

So the government (or this representative) wants to put a limit of how much profit a business can make? That's just crazy. If someone is ignorant enough to pay twice what something is worth, just so they can pay it out, who's fault is that, the business? Ridiculous.

[injuredinmelee]

The Dems dont want anyone making money but themselves. CHeck google for pictures of Edwards (Pres Candidates) new digs.

[AP Panther Fan]

Originally posted by Snyder_TigerFan
So the government (or this representative) wants to put a limit of how much profit a business can make? That's just crazy. If someone is ignorant enough to pay twice what something is worth, just so they can pay it out, who's fault is that, the business? Ridiculous.


really no different than regulators giving a bank a cap on the amount of interest rate they can charge a consumer on certain types of loans...

I hope you don't make me answer any questions that will require research...;)

There are tons of consumer protection laws out there, most of which are moving targets and darn near impossible to keep up with.

[Blastoderm55]

I'm all for a price cap in the industry, but this is too much. I really don't even know where to begin. There are so many variables in the rental/lease/specialty finance sector that putting such a cap is at first glance completely unfair. Then again, being in the industry, I've heard the true horror stories of just how badly some RTO clients are exploited. The attempts at self-regulation from TARA (Texas Association of Rental Agencies) and APRO (Association of Progressive Rental Organizations) have done nothing to protect consumers from price gouging.

This simplified formula of "Cash Price plus 15%" will not work in the fashion in which the legislator hoped. Currently, major RTO firms have a system of pricing such as this:

Cost X 2 = Cash Price X 2 = Rental Price / Number of Weeks = Weekly rental price

Example

Ashley Sofa
$400 X 2 = $800 X 2 = $1600 / 91 = ~$17.99

This example applies to traditional RTO firms such as Rent A Center. They maximize profit by maximizing "turn", the industry term to determine return on inventory or return on assets. Typical RAC stores earn $60,000 to $80,000 per month and normally have approximately 600 customers or 800 rental contracts at any given time. RAC contracts have a "keep rate", or percentage of contracts that are paid out without being returned or repossessed of about 25%, which is their argument in that its clients generally do not rent with ownership in mind.

The rise to prominance of Aaron Rents has led to the emergence of a much more aggressive pricing scheme. While their prices vary by category, I've been able to calculate a rough estimate of what their formula is.

Cost X 2.5 = Lease Price / Number of Months = Monthly Price
Cash Price = Cost + 50%

Example

Ashley Sofa
$400 X 2.5 = $1000 / 12 = ~$83.33
Cash Price = $600

Aaron's prices are generally well-received thanks to emphasis as opposed to the loanshark nature of weekly payments. Regardles, it too is guilty of blatant overcharging in some very popular cases, especially with the drop in price of its consumer electronics, with its most popular product as a glaring example.

52" RCA HDTV
Monthly Price = $99.99x24 months ($2399.76)
Cash Price = $1334.99
WalMart Price = $899

The business model of Aaron's is similar to that of another retail giant that starts will Wal and ends with Mart. Aarons seeks to maximize revenue by have a volume business with strong emphasis on repeat business. Their cash prices are also in line with discount retailers. Aaron's stores typically make between $100,000 to $120,000 per month, with stores in the stratosphere who earn over $200,000 per month. The stores usually have well over 1,000 customer accounts "on rent" at any given time. Aaron's contracts have a "keep rate" of well over 50%, as its shorter terms and lower prices entice its clients to pay off their merchandise.

This newer, more progressive price model has been embraced by customers and dealers, alike. I, for one, adjusted my prices to their model upon hearing of their entrance into my market. Sadly, I could not match their volume nor buying power, so the aggressive model was unsuccessful.

Now, I pose the question?

Which business model is more exploitive? The model which is thought to overcharge its clients, alienating them and sending them on their way, or the model which keeps its customer happy by charging less while furnishing their home in merchandise which could be purchased for far less at a discounter or traditional retailer? These are all things which the legislator who proposed this act needs to take into accounts.

[Blastoderm55]

Frankly, everything about this legislation is moot. You know what rental dealers will do if capped? They'll just raise the cash price, which is something that cannot lawfully be capped. As it is, furniture retailers charge such ridiculous prices (I'm calling you out, Furniture Row Outlet :mad: ) that renting is often a more cost effective option. Most rental dealers do not care to sell their merchandise at a retail price, so their business will not be effected adversely, not to mention those who do want to sell at retail can simply offer a discount to those who want to pay cash.

[lepfan]

Originally posted by injuredinmelee
The Dems dont want anyone making money but themselves. CHeck google for pictures of Edwards (Pres Candidates) new digs. You are showing ignorance with that post! :rolleyes:

[BILLYFRED0000]

It won't pass. But the thing that needs to be included is not the price but the cost. Your formula works from cash price not cost.
A 600 dollar sofa is probably retailed at 100 percent profit margin and thus you arrive at "retail cost". Then the store leases from their retail price so actual profit realized at 15 percent + is
still a goodly amount of money. And there will probably be loopholes that might allow for charging interest etc plus exorbitant late fees that will keep the business profitble. TANSTFL.

[Blastoderm55]

Originally posted by BILLYFRED0000
It won't pass. But the thing that needs to be included is not the price but the cost. Your formula works from cash price not cost.
A 600 dollar sofa is probably retailed at 100 percent profit margin and thus you arrive at "retail cost". Then the store leases from their retail price so actual profit realized at 15 percent + is
still a goodly amount of money. And there will probably be loopholes that might allow for charging interest etc plus exorbitant late fees that will keep the business profitble. TANSTFL.

No. I know exactly what most stores pay for their products, aside from Aaron's, whose level two buying power is second only to Wal-Mart. If Cost is in an equation, it is the landed price for the goods which the store is selling. Plus, in the case of Ashley, its independent dealers pay only slightly more than their Homestores do for product, making for fierce competition when stores like mine consistently under-sell the Homestores, which likely is the reason why the company no longer ships to me. :p

The service included with the prices takes up a good portion of the margin, leaving only a portion of the contract as profit.
Services include:

Free delivery and setup. (Normally at least $50 in town)
Free relocation service. (Normally at least $50 in town)
Product service for the life of the contract ie refrigerator blows a compresser, its repaired or replaced at no additional cost. This also applies to TVs, dropped laptops, mattresses with broken coils, sofas with cracked frames and so on and so forth.
NO CREDIT NEEDED.
No long term obligation.

Yes, there are fees such as Damage Waiver and Club that add to the bottom line, but that's just an upsell like any other business. Late fees in Texas are $5 minimum per payment or 10% maximum but no more than $10, which is considerably less than the fees for traditional financial institutions and creditors.

Regardless, the dealers will indeed find a way around any legislation. This industry is so abstract and can vary from dealer to dealer. I'm certain this will be a hot topic at the winter dealers meeting next month.

[SintonFan_inAustin]

Rent to own 65" inch big screen retail price 2999.00 paid off in 3 years paid double whats its worth but paid out in 3 yrs. got it in 2001 and working great.

36" TV retail price 940.00 paid out in 10 months from lacks

52 inch Big Screen retail price 1800.00 Circiut City being paying since 1998 still owe over 900.00. Been told it take 33 years to pay it out just making the min. monthly payments:rolleyes:

I think the Credit Cards are making some money if u just make the min. monthly payments. 52 inch tv is crappy now and still owe on it:mad:

Furniture store is the best way to purchace electronics.;)

[Blastoderm55]

Originally posted by SintonFan_inAustin
Rent to own 65" inch big screen retail price 2999.00 paid off in 3 years paid double whats its worth but paid out in 3 yrs. got it in 2001 and working great.

36" TV retail price 940.00 paid out in 10 months from lacks

52 inch Big Screen retail price 1800.00 Circiut City being paying since 1998 still owe over 900.00. Been told it take 33 years to pay it out just making the min. monthly payments:rolleyes:

I think the Credit Cards are making some money if u just make the min. monthly payments. 52 inch tv is crappy now and still owe on it:mad:

Furniture store is the best way to purchace electronics.;)

Heck no! Circuit City, Best Buy, Conn's and the like are the way to go with their No-interest financing and generally low prices. Many of my former buying-group's prices were actually HIGHER than those at Best Buy. Lack's has ridiculous list prices, but their promos are pretty good on occasion, and their financing offers are also very good.

And yes, the credit card companies all got us good. I'm still paying on gas from 2003. :p

[Phil C]

An unwritten USA law:


THOU SHALT NOT MONOPOLIZE!!

:mad: :mad: :mad:

[Black_Magic]

Originally posted by AP Panther Fan
really no different than regulators giving a bank a cap on the amount of interest rate they can charge a consumer on certain types of loans...

I hope you don't make me answer any questions that will require research...;)

There are tons of consumer protection laws out there, most of which are moving targets and darn near impossible to keep up with. AMEN!! The Rent to own industry has been preying on folks for a long time.

[Blastoderm55]

Originally posted by Black_Magic
AMEN!! The Rent to own industry has been preying on folks for a long time.

No one is forced to use the service. At least it isn't manditory, like insurance. :p

[Pudlugger]

Sounds like Blastoderm is a free market conservative at least when it is his Ox being gored.:D

[Blastoderm55]

Originally posted by Pudlugger
Sounds like Blastoderm is a free market conservative at least when it is his Ox being gored.:D

No, not at all.

"I'm all for a price cap in the industry, but this is too much."

I do feel that the public companies are guilty of price gouging its clients. You also have to take into account that many of our shared clients steal from us on a daily basis. Yes, keeping turns high is an old school way of being profitable, but moving forward with innovation and excellence in service is what truly impacts the bottom line. I'd much rather have a happy, satisfied customer than some poor, jaded sap who just paid $1200 on a standard Whirlpool washer that'll likely crap out a few months past its warranty period.

The most important facet of our business, something both legislators and lobbyists alike have forgotten, is honesty between the customer and the dealer. Making disclosures readily available to the customer for their own sake and education is the best thing a dealer can do, for him/herself and the customer. An educated customer will weigh the pros and cons of renting a big screen tv instead of saving and buying it cash at a later time. If a customer knows what the terms of the agreement are, then the final price really shouldn't be an issue, because it will already have been acknowledged. However, when dealers hide fees and add manditory charges that are unethical and illegal, consumer advocate groups come in, guns blazing, and lead to legislators proposing such ludicrous legislation.

[Pudlugger]

Rent to own is a business that fills a niche market: giving folks with poor credit an opportunity to have things that they otherwise couldn't because no sound financial institution would loan to such high risk customers. The Rent to Own businesses take advantage of this by tying these folks up with contracts extended over years to essentialy pay 3 or 4 times the cash price of the merchandise. Well, these folks not being dumb, realise that since they have nothing to lose just enjoy the merchandise for a few months then walk away from it. It is a short of pantomine where both parties try to take advantage of the other with little good will in the mix. Sort of like slum lords and low life tenents who strip out the plumbing fixtures and run off without paying the exorbitant 4 months rent. Hard to have sympathy for either parties IMO.

[luvhoops34]

B55, thanks for all the useful information on the rent to own business. I had no idea. I haven't ever rented to own anything, but I truly believe it fills a need for a large part of the population. Sorry you're getting out of the business.

[FormerBellvilleBrahma]

Go Republican's!!!!!!!!!!!!!!!!!!!!!!!!!

[Blastoderm55]

Originally posted by Pudlugger
Rent to own is a business that fills a niche market: giving folks with poor credit an opportunity to have things that they otherwise couldn't because no sound financial institution would loan to such high risk customers. The Rent to Own businesses take advantage of this by tying these folks up with contracts extended over years to essentialy pay 3 or 4 times the cash price of the merchandise. Well, these folks not being dumb, realise that since they have nothing to lose just enjoy the merchandise for a few months then walk away from it. It is a short of pantomine where both parties try to take advantage of the other with little good will in the mix. Sort of like slum lords and low life tenents who strip out the plumbing fixtures and run off without paying the exorbitant 4 months rent. Hard to have sympathy for either parties IMO.

For the record, given that most formulas use the cost x 2 x 2 method for pricing, customer will only pay twice the cash price which is normally fair market price, not the wh***ing prices that discounters have led consumers to believe as fair market price. The only time a customer will ever pay more than $1600 for an $800 sofa is if they don't fill out their end of the bargain and begin to stop paying, which leads them to accumulate late charges as well as trip charges when the rental firm is forced to collect payment in home. And then of course, when it gets out of hand, the rental firm will make arrangements to take possession of the property which hasn't been paid for.

However, the same firm will re-rent the same property or something of similar style and price, to the same customer with a bad history, and will offer "lifetime reinstatement," allowing the customer to start a new contract wherever their old one left off, meaning the customer will not lose any of the equity already paid into the property.

As for your references to slum lords and tenants, I'd love to stick up for dealers and customers alike, but I cannot. I know I run my operation ethically. I've heard from customers I've gained from the three majors in my market just how bad the abuse can be, so I've always strived to provide something different. Sure, sometimes its taken advantage of, but for every person who has skipped town with one of my washer and dryer sets is a person who happily shakes my hand and asks how the family is when I see them at H-E-B or the football game. I doubt they'll do that for the boys at RAC or Aarons.

[Blastoderm55]

Originally posted by luvhoops34
B55, thanks for all the useful information on the rent to own business. I had no idea. I haven't ever rented to own anything, but I truly believe it fills a need for a large part of the population. Sorry you're getting out of the business.

I could probably write a book on the business. :)

And honestly, the business offers something for everyone. If you've got company in town and need an extra bed, you can call them up and use one for a week. If you're having your Super Bowl party and want a 65" big screen, you can call them up and use it for a few days. If you need a fridge to use while yours is repaired, you can call them up and use it for a few days. The possibilities are endless. I think the industry does provide a valuable service. Of course they're villified by the media and consumer groups. Hey, I don't like the oil industry, but I don't see many others helping me get from point a to point b, so I just have to suck it up. :p

[Pudlugger]

Originally posted by Blastoderm55
For the record, given that most formulas use the cost x 2 x 2 method for pricing, customer will only pay twice the cash price which is normally fair market price, not the wh***ing prices that discounters have led consumers to believe as fair market price. The only time a customer will ever pay more than $1600 for an $800 sofa is if they don't fill out their end of the bargain and begin to stop paying, which leads them to accumulate late charges as well as trip charges when the rental firm is forced to collect payment in home. And then of course, when it gets out of hand, the rental firm will make arrangements to take possession of the property which hasn't been paid for.

However, the same firm will re-rent the same property or something of similar style and price, to the same customer with a bad history, and will offer "lifetime reinstatement," allowing the customer to start a new contract wherever their old one left off, meaning the customer will not lose any of the equity already paid into the property.

As for your references to slum lords and tenants, I'd love to stick up for dealers and customers alike, but I cannot. I know I run my operation ethically. I've heard from customers I've gained from the three majors in my market just how bad the abuse can be, so I've always strived to provide something different. Sure, sometimes its taken advantage of, but for every person who has skipped town with one of my washer and dryer sets is a person who happily shakes my hand and asks how the family is when I see them at H-E-B or the football game. I doubt they'll do that for the boys at RAC or Aarons.

True, many folks abuse the system but most appreciate the opportunity to enjoy things that otherwise would not be available to them. It is good to know that ethical businesses like yours are filling a need. Too bad the gubermint feels compelled to step in with harsh regulations. That will just drive out guys like you and then who benefits?

[Blastoderm55]

Originally posted by Pudlugger
True, many folks abuse the system but most appreciate the opportunity to enjoy things that otherwise would not be available to them. It is good to know that ethical businesses like yours are filling a need. Too bad the gubermint feels compelled to step in with harsh regulations. That will just drive out guys like you and then who benefits?

I'm being driven out by the big businesses that our government has a love for. No regulation could ever be as destructive toward the small business community as the power of corporate America.