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Court refuses to hear Rent-A-Center challenge

By Clint Engel -- Furniture Today, January 14, 2007

Washington — The U.S. Supreme Court has refused to hear Rent-A-Center's challenge to a New Jersey court ruling that the company's transactions in the state are subject to an installment sales law that caps interest rates charged to consumers at 30%.

The refusal could cost Rent-A-Center dearly if it has to make refunds to consumers. It also could force other rent-to-own operators out of business in New Jersey, according to an RTO trade association.

New Jersey's Supreme Court ruled last year that Rent-A-Center is subject to the cap under the state's Retail Installment Sales Act and its Consumer Fraud Act. The decision reversed a trial court ruling in favor of the Plano, Texas-based chain, the nation's largest RTO operator.

RAC had 43 stores in New Jersey and at the time of the earlier ruling said it "will evaluate any changes in our business practices that may be necessary to continue to do business in that state."

RAC Chairman and CEO Mark Speese couldn't be reached for comment. In a statement, the company said the decision was disappointing but not unexpected.

"The case is not final and the U.S. Supreme Court almost never accepts appeals before cases are in fact final," the company said. "We continue to believe that the N.J. Supreme Court's decision to retroactively apply new law to the company's conduct was unconstitutional and hope to have the opportunity to raise these issues at a later date. The matter will continue to proceed in the trial court in New Jersey."

Ed Winn, general counsel for the Assn. of Progressive Rental Organizations, which represents some 5,600 RTO stores, including those operated by giants RAC and Aaron Rents, said that some RTO operators in New Jersey "almost certainly" will decide to get out of the market rather than comply with the retail installment law. He said the New Jersey Court reversal "overturns 200 years of common law usury."

"Minnesota ran us out of that state," Winn said, adding, "That was the clear intention of this court — to run us out of New Jersey." He estimated there are more than 100 RTO stores in the state.

Aaron Rents, which has 13 Sales & Lease Ownership stores in New Jersey — a mix of company-owned and franchised units — believes it is in compliance with New Jersey law, said Gil Danielson, executive vice president and chief financial officer of the Atlanta-based company.

"We made some small adjustments in our pricing model to be in compliance," he said.

Last year, in ruling that rent-to-own transactions fell under the retail installment sales acts and criminal usury statute that caps interest rates at 30%, the New Jersey Supreme Court said the difference between the cash prices and the total RTO payments was to be considered interest.

Usury law until now applied only to money loans, said APRO's Winn. "Now suddenly, it applies to credit sales, rent-to-own agreements and who knows what else" in New Jersey, he said.

The court said its decision would apply retroactively to RAC customers if they end up in a class action suit, should one evolve from the case originally brought by consumer Hilda Perez.

Winn also said that according to the court ruling, the new interpretation would be applied from now on at RTO stores operated by any company, but Rent-A-Center is the only one that might be liable for past practices. RAC argued that this was a violation of equal protection, he said.

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Supreme Court ruling could cost Rent-A-Center

Jan 9, 2007

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