Rent-to-Own

Called Off: How New Telemarketing Statutes May Impact Rental Dealers by Ed Winn III

New Depreciation Law Aids Rental Dealers by Ed Winn III

APROfile: Jan Arnett — Z-Best is Yet to Come by Stephen Schenck

 

 

 

 

 

 

Called OFF

Rental dealers market their products and services in a variety of ways. A few make cold calls to consumers, but it is more frequently the case that dealers will make a marketing pitch when calling personal references on a rental order or will pull files and call old customers to see if they want to come in and rent something again.
The “do-not-call” statutes that are popping up all over the country may affect all of these marketing behaviors. These statutes are not aimed at rental dealers, but the broad language in the acts may inadvertently pick up some rental dealer conduct within their sweep. The issue has become a popular legislative target and so far 20 states have enacted “do-not-call” statutes with more almost certainly on the way. [See list in sidebar on the following page.]

IT HAS ALMOST BECOME A NATIONAL JOKE— the family sitting down to dinner only to be interrupted repeatedly by unsolicited telemarketing calls. Only the joke wasn’t funny to the family being interrupted and so the government has stepped in to regulate the telemarketing industry. What follows is a survey of existing legislation to date and its impact on the rental industry, but dealers are cautioned that a number of states not listed are considering legislation and there is a federal “do-not-call” bill pending that may pass this year.

In 1991, the Federal Communications Commission began to enforce the Telephone Consumers Protection Act. This Act and the 1995 Telemarketing Sales Rule adopted by the Federal Trade Commission required telemarketing companies to establish internal do-notcall lists. Consumers may request to be put on the list and the companies must maintain the lists, make their policies available upon request and train their employees not to call people on the lists.

The federal statute specifically regulates the use of automatic telephone dialing systems. If any dealers are using such machines, they are subject to this Act. Far more likely, however, is coverage under one of the state “do-not-call” statutes. These laws differ in their particulars, but generally create statewide “do-not-call” lists to which any consumer with a telephone in the state can subscribe.

There are various procedures for getting on the list, but the states have made the process easy. There is a nominal charge to consumers— a few dollars—to be listed. The lists are most often updated quarterly and a consumer’s name and number stay on the list for a few years before the subscription must be renewed. The statutes then provide that merchants who want to market their products and services on the telephone must purchase the list periodically and implement policies to ensure that they do not call people who are listed. Calling consumers on the “do-not-call” list subjects merchants to fines and penalties.

Other than establishing an overall framework for creating “do-notcall” lists, the state statutes show little uniformity. Numerous exemptions have carved out whole industries in different states, seemingly dependent upon which lobby group was in town when the bill was pending. Most states exclude calls seeking religious, political, educational or charitable contributions. The following industries are exempt in one or more of the states that have enacted “do-not-call” statutes:

• Newspapers, magazines and other periodicals
• Cable TV subscription services
• Licensed securities and commodities brokers and dealers
• Book and video clubs with negative check-off options
• Banks and other “supervised financial institutions”
• Telephone companies
• Real estate agents and brokers
• Motor vehicle dealers
• Insurance agents
• Funeral homes

However, no state excludes rental dealers. There are other exceptions in most states that will cover most marketing calls that rental dealers make, but not all. All states have an existing-business-relationship exception that allows a merchant to call consumers with whom an ongoing business relationship exists, at least until the consumer instructs the merchant not to call any more. In some states, this notice must be in writing to be effective. This exclusion will cover all existing rental customers, but may go beyond that.

State rental-purchase laws have created reinstatement rights that arguably extend the business relationship between a dealer and a customer at least until the end of the statutorily mandated reinstatement period, even though the rental agreement has been terminated. Rental companies with longer reinstatement periods than are required by law (e.g., RentWay’s “Lifetime” reinstatement program) may have an even longer existing business relationship, although several states have language excluding only a business relationship that “has not been terminated by either party.” Has a customer who has returned the rental property terminated the business relationship notwithstanding ongoing statutory or contractual reinstatement rights?

Related issues may involve the circumstances of the termination. A customer who returns rental property after it is “too late” under the rental-purchase statute may have forfeited all reinstatement rights and thus there may no longer be any “existing business” relationship. A number of states also allow calls to consumers on the “do-not-call” list if there has been a prior business relationship for a period of time after the existing business relationship has been terminated. Those states are as follows:

• Alabama: Any prior business relationship
• Alaska: 24 months
• Arkansas: 36 months
• Colorado: 18 months
• Connecticut: Any pre-existing business relationship
• Florida: Any prior business relationship
• Georgia: Any prior business relationship
• Kentucky: Any prior business relationship
• Louisiana: Six months
• Missouri: Six months
• Oregon: Any previous purchasers
• Tennessee: 12 months
• Texas: 12 months

Another important exception in some states is the “come on down” exception. Rental dealers in Alabama, Indiana, Kentucky, New York and Oregon can call consumers on the “do-not-call” list and invite them to come to the store to rent something.What they cannot do is to attempt to close a transaction on the phone. Rental dealers cannot call “with the intent of completing or obtaining the provisional acceptance of a sale (or rental).”

Most state “do-not-call” statutes apply to solicitations of sales, rentals, leases, extensions of credit or any other transaction involving the exchange of consideration for goods or services. A few state statutes, however, only apply to sale or purchase solicitations: Alaska, Florida, Idaho, Kentucky, Oregon, Texas,Wisconsin and Wyoming.

In these states, the “do-not-call” statutes may not apply to rental dealers. That would be the case if those statutes were read literally, which is how they should be read since they punish certain conduct.

However, rental dealers must ask themselves whether this is an argument they want to make and then have to confront the reason these statutes likely were enacted—the legislative intent—which was to allow consumers the means to stop those pesky unsolicited telephone calls at dinnertime and not, presumably, just the calls trying to sell something. Judges can and do consider the legislative intent when interpreting a statute.

Finally, rental dealers should be aware of what these “do-not-call” statutes do not do. None attempt to interfere with existing business relationships and most go on to clarify that the “do-not-call” lists do not protect consumers from calls by merchants or others “in connection with an existing debt or contractual obligation, payment or performance of which has not been completed at the time of such call.” (Ark. Consumer Telephone Privacy Act, Sec. 3(b).)

All of the “do-not-call” statutes are intended to protect consumers from unwanted telephone solicitations. They are not intended to protect consumers from any lawful collection efforts by rental dealers or others.

“Do-not-call” statutes have proliferated in the past few years over the strenuous objections of telemarketing companies that have argued unsuccessfully that their business gives consumers a lot of useful information in an efficient and timely manner. The rental industry has only lately learned of the possible impact of these new statutes on the marketing practices of some rental dealers.

Rental dealers in states without “do-notcall” legislation may want to see whether bills are pending in their states. If so, they should find out if they can get a rental-purchase exclusion allowing dealers to market to references and, perhaps, other consumers they want to call. Dealers in states with “donot- call” statutes already in place will want to review the applicable statutes and their own current marketing practices to ensure compliance. Copies of the state “do-notcall” statutes are available to APRO members through the APRO office.

Ed Winn III is APRO’s general counsel. His e-mail address is edwinn@e-bylaw.com.

 

 

A new Depreciation Law Aids Rental Dealers

Most rental dealers know by now that the Job Creation and Worker Assistance Act of 2002, which the president signed into law in early March, gave them an unexpected tax benefit. This benefit is the result of a depreciation provision in the Act that applies to most kinds of depreciable property purchased between September 10, 2001, and September 11, 2004. For dealers with calendar-year year ends, they were eligible for the extra depreciation on most of their fourth quarter purchases last fall.

The law applies to “qualified property” and that term is broadly defined. It includes all property purchased by dealers as rental inventory. It includes any other property purchased with a recovery period of 20 years or less. It includes trucks. It includes certain qualified leasehold improvements. The qualifications are very restrictive. You should check with your accountant or tax adviser. In a word, almost any property a rental dealer purchases (except real estate) that is not expensed and, therefore, is depreciated, is covered by the new law.

The law gives a dealer an additional, immediate depreciation allowance of 30 percent right off the top. Then the law says to apply whatever other depreciation method is appropriate to the basis in the property after taking the 30 percent.

For example, assume a dealer bought $100,000 worth of rental inventory after September 10 to have full showrooms during the fourth quarter. Under the old law, using three-year MACRS and all the conventions that apply, the dealer would take 33.33 percent of the cost of the inventory in the first year or $33,300 in allowable depreciation.

Under the new law, the dealer gets 30 percent off the top or $30,000. Then the regular depreciation rules apply to the remaining basis of $70,000. Those rules haven’t changed and the dealers get 33.33 percent of the $70,000 or $23,331 for total allowable depreciation of $53,331.

The faster write-off will mean money in the dealers’ pocket immediately, but the savings do not go on forever. In fact, they end in the foreseeable future— September 11, 2004, to be exact. A few years down the road, there will be a shortfall and if the dealer has spent all those savings generously offered up by Congress and the president in 2002, the dealer could feel the pinch. Unless Congress extends the first year bonus depreciation (as many think likely), the bonus depreciation expires on all purchases required after September 10, 2004. Furthermore, the depreciation you gain in year one, you lose in years two, three and four because the depreciation will be less than it would otherwise have been [see charts below].

And so, rejoice in the unexpected rental wealth created by this new law, but exercise some restraint and moderation at the same time. Reinvesting those found dollars into the business may make the most sense of all for many dealers who intend to still be in the rental business in 2004. Copies of the new law are available to APRO members through the APRO office.

Ed Winn III is APRO’s general counsel. His e-mail address is edwinn@e-bylaw.com.

 

AN APROFILE of JAN ARNETT
By STEPHEN SCHENCK

One summer day, when 16-year-old Jan Arnett was dropped off in a Hamilton, OH, neighborhood for his first day of door-to-door sales with the Fuller Brush Co., he didn’t know what to expect. In fact, before knocking on his first door, Arnett wasn’t even sure he wanted the job, let alone whether he had the persistence to overcome the repeated rejection typical of door-to-door selling. So when he found himself face-to-face with a large, intimidating woman wearing an apron, hair curlers and a Lucky cigarette dangling from her lips, Arnett says he thought he’d landed in a scene from one of his comic books. Prepared for courteous introductions and a welcoming smile, he was treated instead to an abrupt, “What do you want?” and a slammed door. Standing on that porch alone, Arnett says that moment was an important one in his life.“I thought, ‘I’m either going to quit right now, fold up my case, head out to the curb and wait for my ride or I’m going to turn around, knock on her door again and give it the old college try.’”

As anyone who has worked with Jan Arnett in the 30 years since that day can attest, what happened next was not surprising. Arnett knocked on that door again, this time assuring the woman that he didn’t want anything except to offer her a choice of two free gifts.When her cigarette, which had pointed upward while she was angry, began to droop as she smiled, Arnett says he knew her interest was piqued. He was soon invited inside and when the sales pitch ended, she had spent $75. By the end of his first day,Arnett had outsold his sales group and was promoted to group leader.

Dogged determination and an ability to form genuine bonds with customers have been key to Arnett’s successful career and were essential to his opening Z-best Rentals in 1996. Despite his natural business sense and knack for selling,Arnett’s advancement through the world of RTO could hardly be considered a meteoric rise. Instead, it has been an often-exhausting, 23-year journey that has taken himthrough 36 states and into countless RTO stores.

Arnett was first exposed to the RTO industry in 1979, while he and his first wife were living in Tunica, MS. After graduating high school in 1974, Arnett had joined the Middletown, OH, police force for three years and, on a recommendation from his police chief, took a two-year military leave of absence.

Fresh out of basic training, Arnett met his future wife and within a few months, they were married. The couple moved to Tunica to be closer to his inlaws and he took a job as a bartender. Then, after seeing an ad for Remco that featured a photo of William “Buck” Fisher, the manager of a Memphis store, Arnett says he knew immediately that rent-to-own was for him.

“When I was kid growing up in Ohio, I always thought that the world was going to be like the command center for Star Trek, where you’ve got people of all backgrounds getting along and coming together to form a team,” Arnett says.

Unfortunately that was not the environmenthe found in Tunica, until he joined the Remco staff in nearby Memphis. In fact, Arnett says his days in Tunica seemed more like the racially divided South he’d seen in movies.

“We were at the doctor’s office for the birth of our oldest son, Jason, when I noticed another waiting room over the nurse’s shoulder,” he remembers. “I asked her what it was for and she said, ‘Well, that’s the waiting room for the blacks.’ I thought, ‘You’ve got to be kidding me.’”

So, based solely on that single advertisement and knowing nothing about the rental-purchase business, Arnett applied for the position. He was hired shortly after and immediately embraced Remco as a place of broader vision and equal opportunity, where promotion was earned through good effort, rather than personal connections.

Arnett trained in Memphis and, within a week, was promoted to product and delivery specialist and sent to a store in Nashville. He says he felt an instant connection with RTO and its customers, but admits he was initially skeptical of who, exactly, rented televisions.

“I discovered the answer was thousands of people in the Nashville area— blue-collar, hard-working people like my parents with whom I’ve associated with my entire life.” In only nine months, Arnett was promoted to store manager of a store in Norfolk, VA.

Before Arnett arrived, the Norfolk store had been a virtual revolving door for mediocre store managers and was one of the worst producing locations in all of Remco. Yet, through hard work and a hands-on approach, Arnett proved to his unbelieving employees that this time things would be different.

“I’d always tell the customer that, like Harry Truman, the buck stops here. I was going to be the guy who took care of all their needs, answered all their questions and made sure they never had a reason not to do business with us. They thought I was crazy for saying that, but that’s exactly what I did,” he says.

Every day, Arnett would show his employees the store’s position near the bottom of the ratings sheet and convince them that together they could make it to the top. Just as he promised, the Norfolk store reached No. 1 in the company 90 days later and remained there for eight weeks. Arnett and his team had tripled the BOR from 600 to 1,743 and had dramatically increased the store’s profitability from negative 9 percent to a positive 49 percent.

The success, says Arnett, was a direct result of the work ethic taught to him by his mother. “[My mother] always said that it doesn’t matter if you’re overpaid or underpaid, if they pay you a dollar, give them the best dollar’s worth of work that you can because your work is your signature for that day of your life.” It wasn’t long before Remco’s owner, Chuck Sims, took notice.

“Chuck came in and observed me on the job. I was nervous, but I sold the customers, and when I was done, Chuck called me into the office. He said, ‘Jan Arnett, do you know we have a policy and procedure for our sales process here at Remco?’ I said, ‘Yes sir, I do,’ and he said, ‘Well, you don’t need any policy to sell. You’re one of the best salesmen I’ve seen.” Arnett would stay with Remco until 1986, working his way up to CEO and earning the nickname “Dr. Gain,” because of his ability for turning around poor-performing stores.

During the many nights he spent on the road, traveling between Remco stores all over the country, Arnett developed an extensive business plan to help him achieve his dream of owning his own company. Despite his efforts, however, he says creditors knew little of the rental transaction and would “laugh [him] out of the bank.”

Looking to find another way to reach his goal, Arnett joined two businessmen in Cincinnati to open Better Living TV and Appliance Rentals. Believing that he would be offered an equal partnership after three years, he agreed to help get three stores up and running. Then, during a disappointing time after the divorce from his wife in 1989, Arnett was dealt a second blow, this time from the business partners he had trusted. “I was a single father with two boys at the time. They called me out to the parking lot and said theywere letting me go,” he says.

Needing to find work as quickly as possible, a humbled Arnett accepted a manager-in-training position from Bud Holladay at Alrenco, which, with his many years of experience, Arnett perceived as a “slap in the face.” But, like clockwork, “Dr. Gain” was rapidly promoted through the ranks, eventually becoming vice president of the southern region and increasing profits 1,000 percent in 18 months.

Rediscovering success was a proud moment for Arnett, but he says it pales in comparison to the most significant experience at Alrenco and in his life— meeting his current wife, Sherry, who was a manager there in 1990. In a whirlwind romance, the two were married within 40 days of their first meeting.

“I’ve just never met a better human being in my life and, you know, if that was all RTO ever did for me, all those years would still have been worth it,” he says. “I’m still as enamored with her today as I was then.”

In the first three years of their marriage, both he and his wife left Alrenco, Arnett joined Colortyme and the family moved four times, finally planting roots in Palm Coast, FL. By May 1994, Arnett’s constant traveling and another failed attempt to find financing for his own RTO venture had taken its toll, so he decided to leave the industry, uncertain if he would return.

“I always said I would do this business until it wasn’t fun and that year it quit being fun,”Arnett says.“Though we still had a roof over our heads, we were very close to being destitute. I came to the realization that no one was going to loan me the money for this endeavor.” After 15 years in the rental business, Arnett began his new career as a 100 percent commissioned salesman in the message-on-hold business—selling systems that allow businesses to play promotional messages to customers while they hold on the telephone.

As he had done before, time and again, Arnett excelled in his new position, surpassing every expectation and eventually landing high-profile accounts with United Health Care and Domino’s pizza.

“Chuck Sims told me once that my gift was that I could communicate with anybody. So, even though I had always dealt with blue-collar people, I wasn’t intimidated and ended up talking to a lot of influential people.As it turns out, one of those people was Greg Kostka, owner of more than 20 Domino’s franchises in Florida, whom he met while trying to sell message-on-hold to Domino’s.

“He runs one of the top five Domino’s chains in America. He believed customers deserve the best service, best service and best price,” Arnett says, “which was what my motto was for RTO.” Arnett showed him his business plan and an impressed Kostka offered him financial backing.

In 1994, Arnett had nearly given up on his dream, but, in an ironic twist, leaving the RTO industry had actually brought him closer to that dream than ever. He never expected that only two years later, he would have the opportunity to open his own store.

Arnett returned to RTO as if he had never left and his business, Z-best Rentals, based in Palm Coast, FL, has been trouble-free ever since—a fact he attributes to his “PhD in Rentology,” a reference to his many years in the industry. Also, he says the opportunity to work with Dan Rudden, Bud Holladay, Chuck Sims, Bob Wise and others, he calls the “godfathers of RTO,”have been crucial to the operation of Z-best. “They say God works in mysterious ways, but from day one, business has been phenomenal. Maybe after 15 years, that’s just how it was supposed to work out,” he says.

In 1998, Arnett opened up a second store and bought out his financial partner to gain complete ownership. Then, this past February, he celebrated the opening of an 8,000-square-foot Z-best Rentals superstore in Palm Coast, complete with corporate offices and training facilities. Though the store is only his third, Arnett says he has every intention of expanding in the future, but how much depends on customer demand.

“My wife always tells people that we’ll open up a 100 stores if that’s what the customers want,” says Arnett.

Z-best may, indeed, become a powerful force in the RTO industry, but reaching mega-chain status isn’t what drives Arnett. Instead, his motivations remain what they have always been—to create a rent-to-own environment, rooted in family and focused on genuine care and concern for the customers.

From day one, his wife Sherry, with her years of RTO experience, has been an integral part of Z-best’s success.And between school and soccer practice, which Arnett passionately coaches, their three children have been working in the family business since they were young boys. Together, Arnett believes, they have created a special place in the RTO world.

“I think we’re going to change our logo to ‘not your typical rental store,’ because we do everything I dreamed of doing in a rent-to-own store and more,” he says. “Buck Fisher told me once that you’ll always be successful if you love your customers and they love you…and that’s what I’ve done.”

Stephen Schenck is a free-lance writer.