Rent-to-Own

Lawsuit Bound? There is Another Way: Arbitration by Ed Winn III

Are We There Yet? A Progress Report on the State of the Industry’s Image by Richard May

APROfile: National TV Sales & Rental — The Ultimate Family Business by Thomas G. Dolan

 

 

 

 

 

Lawsuit bound? There is another way: Arbitration
By Ed Winn III

If rental dealers cannot recover their money or their property through patient persistence, the choice finally is to sue the customer or take the loss (and maybe sue the customer, then take the loss, anyway). Likewise, when a customer has a beef with a rental company, the choice finally is to sue the company or get over it. There is another way: arbitration.

Arbitration is gaining favor among financial institutions and other retail industries as a cheaper and quicker means of resolving disputes with consumers than litigation. Rental dealers have considered alternative dispute resolution (ADR) mechanisms, mediation and arbitration, for resolving disputes with employees for some time. The notion of using ADR with consumers is fairly new, but it is gaining acceptance rapidly with businesses and consumers alike.

Last December, the U.S. Supreme Court handed down its first decision involving consumer financial services arbitration, Green Tree Financial Corp. v. Randolph. Some consumer advocates were hoping that the Supreme Court would limit the ability of companies to mandate arbitration in consumer transactions. But, rather than stifling consumer arbitration, the Supreme Court ruled that arbitration was appropriate in Truth-In-Lending cases. However, the Court did so with the caveat that some arbitration agreements might not be enforceable if the fees consumers have to pay in order to arbitrate were "prohibitive" and, further, that the consumer has the burden of proving the fees are excessive.

The Supreme Court could have stifled further development of the use of arbitration involving consumers, but instead, gave businesses a green light to move forward toward this mechanism for resolving disputes. The expectation is that arbitration will soon gain widespread acceptance in some industries in which consumer disputes frequently arise.

There is federal statute, the Federal Arbitration Act, which establishes a presumption in favor of arbitration as a lawful means of resolving disputes and which authorizes arbitration rulings to be enforced by the courts. A number of states have their own statutes authorizing arbitrations and establishing guidelines to insure that the process is fair and unbiased.

Over the years, both non-profit and for-profit organizations have arisen to offer arbitration services. The American Arbitration Association (AAA) is the largest and best known with written rules for different kinds of disputes and a nationwide pool of arbitrators with expertise in a variety of fields.

What is arbitration?

In a nutshell, it is a nonjudicial mechanism for resolving disputes. It is fundamentally a matter of contract. What the parties agree to may vary widely, depending upon the parties. Arbitration may be optional or mandatory. The parties may agree by contract in advance to arbitrate in the future if a dispute arises (mandatory) or they may agree to arbitrate after a dispute actually does arise (optional). Arbitration may be binding or nonbinding. The parties may agree to abide by whatever ruling the arbitrator gives or they may reserve the right to sue no matter how the arbitrator rules.

Arbitration provides a mechanism for the disputants to choose one or more independent, unbiased arbitrators who will act as judge and jury in the dispute and who will listen to both sides and make a decision about how the matter is to be resolved. The arbitration decision may be a sentence awarding money to one party or the other or it may contain a lengthy explanation of the reasons for the decision, depending upon what the parties want and can agree to.

If the arbitration is binding, the ruling can be entered as a judgment in court and enforced with all of the powers available to the judiciary branch of the government. Discovery, when one party can examine the other side’s evidence prior to the arbitration hearing, if there is one, is usually limited, and the rules of evidence and procedure are looser than they are in court. Some arbitrations are conducted entirely by telephone, others have face-to-face hearings with witnesses testifying under oath and subject to cross-examination.

Legal oversight of the process is limited. Without evidence of fraud or some fundamental unfairness in the process, e.g. a biased arbitrator, the courts will enforce arbitration decisions as rendered and there is no right of appeal.

Arbitration arose originally between merchants needing to resolve certain kinds of recurring commercial disputes without the time and expense of full-blown litigation. It has proven successful in the business world and, in recent years, has begun to enter consumer transactions, although the practice of arbitrating consumer disputes is not yet widespread. Why Arbitrate?

Arbitration is an alternative to litigation. It is generally quicker and less expensive. For some kinds of arbitration, the disputants need not hire attorneys. Discovery is limited. Arbitration is private. Arbitration hearings are not open to the public, as are trials, nor are arbitration results generally publicized. While the rules vary from state to state, arbitrators may not be able to award punitive damages, nor can they hear cases involving more than one plaintiff at a time (no class-action arbitrations). Arbitrators are not as tightly bound to follow the letter of the law as are judges and juries. Instead, they are able to fashion relief based upon what they deem to be fair and just under the circumstances. Judicial review of arbitration decisions is very limited.

Initially skeptical, the judicial system today looks upon arbitration with approval. Arbitration has helped relieve case backlogs in courts. Repeat users have deemed the process fundamentally fair. The result is that arbitration continues to expand as an alternative to the courtroom.

Why some Consumer Advocates Don’t Like Arbitration

Agreeing to arbitrate involves giving up some constitutional rights, namely the Seventh Amendment right to a trial by jury in all civil disputes when the amount in controversy is more than $20. Consumer advocates do not like for consumers to waive any rights, certainly not constitutional rights. The standard for waiving such a right is that it must be done "knowingly, intelligently, and voluntarily." Consumer advocates complain that mandatory arbitration clauses are often buried in lengthy loan documents or, worse, sent in flyers from credit card companies along with the monthly statement. Consumer advocates suspect, but cannot prove, that consumers fare worse in arbitrations than they do in court.

Consumer advocates have an instinctive aversion to all terms in "contracts of adhesion," which are contracts offered by a superior party to a weaker party on a "take-it-or-leave-it" basis. Most consumer contracts, including rental-purchase agreements, could be so categorized. If the arbitration process is a fundamentally fair one, no more so or less so than the judicial system, then consumer advocates should not care if consumer disputes are resolved by arbitrators instead of judges and juries. One might expect the same result, more or less, in either forum. However, consumer advocates fear that repeat users of the arbitration process will learn the system better and achieve better results in it than onetime users. Of course, the same argument can be made of the judicial system. Some advocates fear that repeat users may even be able to bias the system in their favor by preferring one arbitration group or company over another with the very promise of more business in the future. Consumer advocates especially do not like consumers’ inability to file class action claims or recover punitive damages in arbitration.

Finally, consumer advocates do not think that arbitration serves the ends of justice and social policy as decided by legislatures when the process resolves privately what are really public disputes. For example, the Truth-In-Lending Act was designed to curb certain lender abuses. The Federal Reserve Board was appointed to oversee and regulate the lending industry under this Act. One way for the FRB to measure lender conduct and compliance with the law is by reviewing the litigation that arises between lenders and borrowers.

If all TIL disputes were to be resolved by arbitration, the FRB, and for that matter, Congress and state legislatures, would be deprived of a valuable source of information about the nature of the debtor-creditor relationship. Consumer advocates argue that this lack of information because of arbitration risks making regulators less able to do their jobs.

The converse of all of the consumer advocate complaints, of course, is why businesses are motivated to arbitrate consumer disputes. If that is the case, one might fairly ask why the rental industry has not moved toward arbitration with the same zeal and speed as some other industries? It may be because customers do not often sue rental dealers, nor do dealers invoke the judicial system all that often to recover property. If dealers were unable to recover most property on their own without having to sue customers, the business would not work. At best, arbitration is only an alternative to litigation. If you don’t litigate, you don’t need to arbitrate.

Will Arbitration Work for Rental Dealers?

As with most things, there are pros and cons to arbitrating consumer disputes. First, the system is untried in the rental industry and no one knows how consumers and judges will react. Initially, mandatory arbitration clauses might hurt deliveries. Consumers confronted with having to waive the right to a trial by jury in order to rent a television in one store might choose a store down the street without an arbitration clause. In any case, the arbitration clause will have to be highlighted and explained in the store; objections will have to be overcome. This in addition to explaining the basics of the rental agreement.

If rental dealers want to arbitrate, they will have to be careful not to waive rights themselves that they need to run their businesses. Many arbitration agreements require the parties to arbitrate "all claims and controversies" that may arise between them. Rental dealers will not want to arbitrate before they attempt to pick up merchandise. Dealers will need to carve out self-help repossession and perhaps extraordinary judicial relief as well from arbitration if they resort to writs and other pre-trial judicial mechanisms for recovering property on a regular basis.

At the same time, dealers will have to be careful how they draft arbitration clauses, because the more one-sided the arbitration agreement, the greater the risk that a court will refuse to enforce it. Rental dealers would like to be able to require consumers to arbitrate their disputes while preserving the right of rental dealers to go to court. Dealers would like to require that the arbitrator be a rental dealer. Dealers might like all arbitrations to have to occur close to the home office. Dealers would like for consumers to have to pay for the arbitration, at least if the consumer initiates the action. None of these clauses are likely to withstand judicial scrutiny, because arbitration statutes require that the arbitration process be fundamentally fair to both sides.

Courts are quite sensitive to economic and procedural barriers to arbitration. The Supreme Court just ruled that arbitration fees in consumer arbitrations can’t be excessively high, without explaining how much is too much. Dealers might look at the fees for filing claims in small claims court as a guide and not require consumers to pay more than this amount to arbitrate a claim.

Because of the increasing use of arbitration in the consumer setting, a number of arbitration and consumer protection groups conferred together and issued a Consumer Due Process Protocol for arbitration. (For a copy, go to www.adv.org/education/education/consumer_protocol.html.) The protocol sets forth in some detail recommendations for achieving fundamental fairness in consumer arbitrations, how to provide adequate information to consumers about arbitration, how to choose neutral arbitrators, the relationship between arbitration and sma ll claims court and other matters.

The decision to arbitrate with consumers will be made in the rental industry, as in other industries, company by company. Some will see the benefits of cost and time savings and limited liability as far exceeding any burdens to implementing the system into their rental programs. Other companies will remain content with the status quo.

Companies wishing to pursue the matter further must be attentive to the rules that exist, which vary considerably from state to state, and the developing case law. It is not the case that a simple arbitration paragraph borrowed from another industry or other source will necessarily work for a rental company and may even have the unintended result of impeding collection efforts and costing the company money. As companies begin to experiment with consumer arbitration, APRO will attempt to keep its membership informed about how arbitrating consumer disputes is working for dealers.
 

 

Are We There Yet? A Progress Report: Improving the Industry’s Image
By Richard May

It’s been nearly eight years since members of the Association of Progressive Rental Organizations first mentioned the words "public relations." Where does rent-to-own stand today in its search for greater public acceptance?

On March 31, 1993, Congressman Joe Kennedy Jr. turned to APRO executive director Bill Keese and told him, "you boys have an image problem." It was then that APRO’s public relations program was born. After an excruciating hearing where U.S. Representatives tossed out accusations and recounted horror stories of rent-to-own, APRO hired its first public relations firm. The firm was charged with trying to stop rent-to-own bashing and teach the Association the fundamentals and importance of proactive public relations. Now, eight years later, can we measure our public relations progress? Does the industry relate better to the public? Is there a greater public acceptance? How do we know?

The Media and RTO

Let’s begin with the area that has had the most impact on the industry’s public image: the media. From 1993 to 1996, the industry averaged 1,200 negative news stories per year. The Association knows that figure because we track stories through various clipping and wire services. Beginning in 1996, negative news stories began to taper off considerably with fewer each year. In 2000, APRO received less than 100 negative news stories.

Many factors have contributed to the industry’s much-improved media status. One reason is that the industry has grown substantially. The introduction of rent-to-own on Wall Street and the investment community has given much needed credibility to the industry. The rentto- own industry continually appears in the business section of newspapers instead of the consumer sections these days and in relatively significant numbers. APRO receives an average of 10 business articles a month regarding rent-to-own. Even the media has wisened up a little. Every time reporters think they’ve received a hot consumer tip, they begin to do their research and quickly learn the pros and cons of rent-to-own and their fervor dissipates. The most recent arrow in our quiver has been the FTC report on rent-to-own consumer satisfaction. This report, from a government agency that tends to be very proconsumer, declares "rent-to-own customers are satisfied with their experience with rent-toown and the industry provides a service that meets and satisfies the demands of most of its customers."

One of the biggest factors in getting across a more positive image through the press, though, is Association members embracing media relations as a fundamental component of running their rent-to-own businesses. APRO has spent years reshaping the rent-to-own story and developing its messages, and it has worked. Members generally present themselves well and are knowledgeable about their industry. They know what to say when the press comes calling. They pay attention to business practices that keep the industry out of the news.

One of the primary objectives of public relations was to defend the industry to the media and turn the story around. After eight years, it appears that the strategy has worked. The industry still averages 1,200 articles a year, but now the majority of them are positive or neutral largely due to APRO’s media placement campaign through the North American Precis Syndicate (NAPS)Ña paid media placement company. NAPS, the APRO Web site, a mediasavvy membership and a concerted media relations campaign has educated reporters and America to understand better what rent to own is and why it exists. As a consequence, rentto- own has benefited with rent-to-own news reports that focus on store openings, stock values and participation with charities such as Habitat For Humanity International.

The Value of Research

Another significant component of the industry’s public relations campaign has been the amount and level of research APRO members have asked their Association to spend on research on image, customer satisfaction and the transaction. In the early days of public relations, the board member with the strongest opinion and best argument defined PR strategies. Today, we guide our activities through research and from a statistical base.

The first survey commissioned by APRO in 1994 was to gauge customer satisfaction within the industry. Those survey results and a follow-up study done in 1999 helped answer questions such as why the industry is successful and, more importantly, where the industry needs to improve in regards to customer satisfaction. Secondly, the study results established the industry’s first statistical analysis to measure future trends and research, thereby lending more credibility to the industry and the Association.

The second study was the 1997 public perc eption study gauging Americans who fit the rentto- own demographics, but who did not rent to own. This invaluable study set the tone for a five-year public relations strategy with the lofty goal of improving the public’s image of rentto- own. The study verified some dealers’ worst fears that, "negative images of rent-to-own outweigh positives 2-1." The study confirmed the assumptions of some, but surprised almost all to discover that the No. 1 source of the industry’s negative perception is generated by its television advertisements. That conclusion led the industry to create a series of television and radio ads for members to either tag or customize at their own discretion. Today, APRO members can choose from 11 produced commercials and 30 minutes of footage to create their own quality television advertising spots.

Another study APRO is following is the empirical analysis of the RTO transaction measuring the worth of "no-obligation" in rental-purchase transactions. Two UMASS Finance Professors are currently pouring through an enormous database of information to draw an empirical conclusion.

A recent draft of the article by Drs. Ray Jackson and Michael Anderson states, "from a public policy standpoint, efforts to educate consumers about the ‘pitfalls’ of RTO are bound to be unsuccessful since these agreements provide a necessary alternative in the marketplace for those who cannot, or wisely feel they should not, secure traditional installment or credit card financing."

A series of customer satisfaction studies, a public perception study, the FTC report and an academic financial analysis of the transaction add up to enormous credibility the industry did not have eight years ago.

Redefining the Industry

The biggest lesson the industry learned through public relations is that if you do not define yourself, then others will. Unfortunately, however, when public relations became a priority for this industry, consumer groups, the media and industry advertising had already defined it. Therefore, the public relations campaign efforts centered on re-defining the rent-to-own industry, which is more difficult than creating an image from nothing.

To create more goodwill, the industry affiliated itself with Habitat For Humanity International. Associating rent-to-own with a well-known charity is a standard public relations tactic but means nothing if the commitment is not real. Now, four years into this partnership, the industry has contributed nearly $1 million in time, money and labor with 11 state rental-purchase dealer associations and countless rental companies participating. As the commitment continues through the years, the character of the rental-purchase industry begins to create substance.

Ultimately, the industry image must originate from those who represent the industryÑemployees and customers. The public relations campaign has concentrated on those areas as well. Seminars, training videos, break room posters, customer pamphlets, studies, articles and customer and employee of the year contests are all a part of a greater campaign to create rent-to-own ambassadors at the store level and, hopefully, to improve employee retention.

Media relations, advertising, research, Habitat For Humanity International and an employee and customer focus encompass the framework fro m which the industry’s public relations campaign has unfolded during the past eight years. Every APRO member and RTO dealer must acknowledge and embrace these ideas as a function of their business.

So, are we there yet? Probably not, but sometimes power comes not from reaching a particular destination, but from the journey itself.

Richard May is APRO’s director of public affairs. His e-mail address is rmay@apro-rto.com

 

National TV Sets And Rental
The Ultimate Family Bussiness

THERE ARE FAMILY BUSINESSES AND THERE ARE FAMILY BUSINESSES. And then there is the Lebanon, MO-based National TV Sales & Rental, a third-generation business in which almost 20 percent of its 60 employees are family. What makes this particular venture so successful is not simply that it is run by the family, but that it is also based on sound business principles. National TV Sales President and CEO Mark Windsor got his start in the industry by working as an accounts manager for a rental company in Texas. He worked his way up to the point where he was managing six stores of which one was his own. But he decided he wanted to go back to his hometown of Lebanon, so he left Texas and returned to Missouri to start his business anew. This was 1986. His wife, Executive Vice President Kathy Windsor, meanwhile, had seven years experience working as a manager for a neighborhood 7-11 store while in Texas, where, she recalls, she learned a lot about business, especially standardization of policies and procedures, employee training and customer service. “I learned how customers’ eyes light up when you call them by name,” she says. “People like to be recognized.” That first store opened in 1986 was the start of the family business. Since then, the family has grown and so has the business. “I wish I had known 20 years ago that I would be in this situation,” says Mark. “I would have had more kids and nieces and nephews.” Currently, Mark and Kathy’s three children are all involved in the business, which “is a father’s dream come true.” Joining them are two of the Windsor’s nieces (Brook and Nicole Weddle), along with their mother (Mark’s sister Margaret), Rick Windsor (Mark’s brother) and Kathy’s mother, Eunice Jeffries, and Mark’s dad, Dick Windsor.

THE WINDSORS NOW HAVE 13 STORES, with plans to open two more. All of the stores are in Missouri. Whenever the couple looks to open a new store, they look for a small town. “We’ve opened a couple of city stores, but they don’t thrive as well as our small town stores,” Kathy says. “The nature of our business is more suited toward small towns.”

This is especially true in terms of the personal service the Windsor’s offer. Personal service, of course, is important in any store, no matter where the location. But it’s got a special connotation in a small town where word of mouth, good or bad, travels fast.

“We’re required to respond to a customer complaint within 24 hours, to at least make contact,” Kathy says. “Most of the time we take care of the problem the same day. Everything we offer is not covered by warranty, but we do our best to fix the unit, replace it with something of equal value, or provide a loaner. You won’t find service like this from a Sears or Wal-Mart. But we feel it’s important. If we expect customers to pay on time, we have to make sure that what we provide them is in good working order. If it breaks down, we fix it immediately.”

The store offers a wide variety of payment plans to make it easy for the customer to pay on time. Kathy’s favorite is the 90-day cash program in which the unit is paid for in full within 90 days. “This gives the customer a very good value, for it allows us to lower the cost of the merchandise. A lot of customers start planning their 90-day purchases right after Christmas, so that when income tax refunds come in, they have the money. They also have the satisfaction of owning the product.”

The plan also helps the store, Kathy says, because there are more products sold and a faster turnaround, requiring less maintenance. This is especially true of more inexpensive products.“Renting something for $2 a week for 52 weeks is a chore for both sides,” she says. “And the customer may get tired of it.”

AN UNCONVENTIONAL APPROACH

Kathy doesn’t want her customers to get tired of anything in her store. Forthis reason, she offers a wide variety of merchandise. “There’s only so many televisions or VCRs that any home can have,” she says.“And, if you’re in a small town, there’s a limited population, so you have to keep offering something new to bring people back.”

For this reason, Kathy is always on the lookout for a wide variety of odds and ends and curios, including little pub tables, “pie faces,” rough pine hutches, jewelry cabinets, magazine racks and microwave stands. “We recently purchased some video games comparable to the pinball machines in the old arcades,” Kathy says. “We put these out on a five-week agreement and rented 200 within a month. Bringing in new items also causes excitement with the employees and keeps their enthusiasm up for the rest of the business.”

The business breaks down roughly into 30 percent of white good appliances, about 25 percent furniture, about 20 percent electronics, 10 percent computers and the rest miscellaneous.

The company does a lot of conventional advertising including extensive radio, some cable TV and four to five direct mail fliers per year. Her most effective form of advertising, however is the $20 referral fee.

Whenever someone brings in a new customer, at the time the customer makes the first payment on a rental, the person who made the referral gets $20, either in cash or as a credit toward a rental. “One customer paid off his entire VCR with referrals,” Kathy says. “Some hand out our business cards with their name on it to their friends and colleagues. That says something about the way we do business when our customers are willing to make those kinds of referrals.”

A STREAMLINED OPERATION

In projecting the location for a new store, the Windsor’s, in addition to choosing a small town with a good market potential, also want one along their shipping route. The company purchases via a full semi-truck load. The goods are then all shipped to their 200,000-square-foot distribution center, which the company then delivers to the various stores in three trucks. “Not very many rent-to-own businesses do it this way,” Kathy says. “But if you order on an individual store basis, you can wait six to eight weeks for delivery. Inventory needs can change drastically during this time.”

This way, Kathy says, the company gets price discounts through volume buying. Also, the company’s trucks can easily make adjustments from store to store, picking up, say, extra refrigerators from one location to take to another that needs them right away.

“We feel we’re never out of product,” Kathy says. The corporate office is computerized so management knows exactly what is available and needed in each of the stores. “If each store did its own buying, it would take fewer employees and less planning,” Kathy says. “But I wouldn’t change it. For we deliver more efficiently and we always get those volume discounts.”

In addition, the company has its own service departments for both appliances and electronics. If something cannot be fixed in the home or at the store level, the trucks can bring it to a central location and get the unit fixed much faster than sending it to an outside service.

Centralized buying implies a level of standardization and, in fact, standardization is the norm throughout all of the stores. “Sometimes our customers travel or move to a different town or have relatives and friends someplace else. We want them to be able to go into any of our stores and find basically the same products at the same price,” Kathy says. “Account goals also are standardized and all employees wear light-colored dresses or shirts and ties.We dress for success and fully believe in that.”

PLANTING THE PROPER ROOTS

Training is also standardized. There are three basic stages. The beginning employee has three days of training in a classroom environment. Goals are established and reviewed each week. The second stage comes about six months later. It involves a formal twoday training period. This prepares the employee to be an assistant manager or assume a comparable position on the management support team.

Promotions are not automatic if there are no openings, but the employee is prepared and in line when an opportunity does present itself. The third stage of training at National TV Sales & Rentals occurs after about a year. This is called managers in-waiting. Employees learn how to handle the duties of a manager and are qualified to manage a store when the manager is absent due to vacation, sickness or other reasons. These managers in-waiting are then prepared to step into an opening for manager when it opens up.

A new program the company has been working on for nine months is called MIT or manager in training. Although the company has traditionally promoted from within, Kathy says, “Sometimes you need new blood or need to bring in a qualified person from the outside. Maybe someone has managed a convenience store or has college qualifications. This person is not going to start out at $7 an hour. So this program brings an experienced person like this up to speed on the business and offers accelerated management training.”

KEEPING THAT “FAMILY” FEEL

Even though this is a family business, National TV Sales faces many of the same challenges as all rental stores, including the ongoing challenge of attracting and retaining good employees. “This industry is famous for its turnover rate,” Kathy says. “The work ethic isn’t there as much as it once was and people aren’t as loyal. We offer a very good profit sharing and insurance plan so that they will think of themselves as a part of our family. After a year of employment, however, the turnover rate drops significantly.”

Kathy goes far beyond simply offering good benefit packages to her employees. “I guess you could say Kathy is the director of warm fuzzy feelings,” says Mark. “She is the one who sends out personal handwritten notes for all occasions, gives handmade receiving blankets for all births, plans Christmas parties, cooks at company picnics and personally cooks and serves lunch to all new employees in classroom training. I take care of the nuts and bolts of the company. She takes care of the rest, including the scholarship program, community and charity affairs and playing mom where needed.”

The Windsor’s sense of family extends into the community as well. Scholarships of $1,000 are offered to high school graduates in every town where the couple has a store.Mark runs a beef farm on the side and is very active in Future Farmers of America. The couple donates generously to charities and are on many church lists as resources to turn to when families are struck by tragedies such as a burned down home or domestic violence. They will gather up and donate whatever might be needed, furniture, clothing or cash. For a long time, for customers whose health was in decline, the Windsor’s have provided items such as a lift chair, water heaters, log splitters, “whatever,”Kathy says, “is needed.”

“This business has been very good to us.We’ve found that if we treat people the way we would like to be treated, whatever you give eventually comes back,” says Kathy.

Thomas G. Dolan is a free-lance writer living in Anacortes,WA.