RAC to pay $109 million
Court said rental payments were interest
By Larry Thomas -- Furniture Today, May 7, 2007
Plano, Texas — Rent-A-Center said last week it has reached a tentative out-of-court settlement of a long-running class-action suit in New Jersey.
Under terms of the tentative agreement, the rent-to-own specialist will pay about $85.8 million in cash to New Jersey customers and spend another $23.5 million for the costs of administering the settlement and attorney's fees for the plaintiff.
The suit, filed in 2003, accused Rent-A-Center of violating New Jersey's Retail Installment Sales Act and Consumer Fraud Act, which cap interest rates charged to consumers at 30%.
The retailer contended it wasn't subject to the law since its transactions are rental-purchase agreements, not credit sales.
The New Jersey Supreme Court, however, said the difference between the cash price of a product and the total of all rental payments was considered interest, and the U.S. Supreme Court refused to hear the retailer's appeal.
Rent-A-Center Chairman Mark Speese said the company continues to do business in New Jersey, where it operates 43 stores, but has changed its contract forms and business practices to comply with state law.
"We believe this settlement is fair and in the best interest of the company and its stockholders," Speese said during a conference call with securities analysts last week.
According to terms of the tentative agreement, Rent-A-Center is not admitting any liability under the New Jersey law.
Speese said he expects the settlement to be finalized in 30 to 60 days, and the company will begin paying the money in the fall. It wasn't immediately clear how many consumers would be eligible to receive money from the settlement fund.
Bill Keese, executive director of the trade association APRO — the Assn. of Professional Rental Organizations — said the settlement shouldn't have any further impact on the rent-to-own business in New Jersey because other RTO operators already have modified their contracts to insure they are following state law.
"We really don't think the settlement is going to change anything," he said. "The (New Jersey) Supreme Court ruling already did that."
Keese said there are approximately 61 RTO stores in the state, most of them operated by Rent-A-Center or Aaron Rents, the nation's two largest rent-to-own operators.
