SPEAKERS CONTENTS INSERTS
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H.R. 1701THE CONSUMER RENTAL PURCHASE AGREEMENT ACT
THURSDAY, JULY 12, 2001
U.S. House of Representatives,
Subcommittee on Financial Institutions and Consumer Credit,
Committee on Financial Services,
The subcommittee met, pursuant to call, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. Spencer Bachus, [chairman of the subcommittee], presiding.
Present: Chairman Bachus; Representatives Barr, W. Jones of North Carolina, Biggert, Tiberi, Waters, Watt, Sandlin, Moore, Gonzalez, Kanjorski, J. Maloney of Connecticut, Lucas and Shows.
Chairman BACHUS. At this time, we're going to convene the hearing so the hearing of the Subcommittee on Financial Institutions and Consumer Credit will come to order. Without objection, all Members' opening statements will be made a part of the record. In order to permit us to hear from our witnesses and engage in a meaningful question and answer session, I'm encouraging all Members to submit their statements for the record.
I'm going to recognize myself for an opening statement. Then we anticipate recessing, unless there are other Members that have opening statements at that time. There will be some floor votes, and then we will reconvene probably 5 minutes after the last vote on the floor.
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The subcommittee meets here today, not for a mark-up, but for a hearing, and those of you familiar with the process know that there is a difference. Before we proceed to a mark-up, we want to hear from different parties representing diverse interests, and we will take your comments and at that time, or after considering your comments, we may or may not schedule a mark-up.
But, this is an important issue for Members of the subcommittee and I do anticipate at some point a mark-up in the future.
The subcommittee meets today to consider the merits of bipartisan legislation introduced by our colleague from North Carolina, Walter Jones, to establish uniform standards for so-called ''rent-to-own'' transactions.
The rent-to-own industry, which has experienced dramatic growth in recent years, provides consumers with immediate access to household durable goods, such as furniture, appliances and computers, usually with no downpayment required. In a standard rental purchase agreement, the customer leases the product for a week, or for a month, and at the end of that period, can do one of three things: one, return the product without obligation or penalty; two, keep the goods and rent for another period; or three, purchase the item.
A customer who continues to lease the goods for a specific period of time eventually acquires ownership of the item, usually after 18 months. An estimated three million consumers enter into rent-to-own transactions every year. The typical customer for these services is someone who cannot afford to purchase the property outright, and may not qualify for credit.
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In addition, some customers rent merchandise to meet short-term needs or for the purpose of trying out a product before deciding whether to buy it. Some consumer advocates have questioned whether the rent-to-own industry exploits consumers who may not have access to low-cost alternatives, either because of bad credit history, or because they live in neighborhoods forsaken by traditional retailers.
Prompted by these concerns, the Federal Trade Commission, (FTC), staff conducted a nationwide survey of rent-to-own customers, releasing its findings in April 2000.
While I will defer to the FTC representative who is here this morning to summarize the agency's work, it is worth noting that the FTC's staff's conclusions contradict some, if not many, of the claims of the industry critics.
For example, according to the survey, 75 percent of customers expressed satisfaction with their rent-to-own experience, causing the FTC staff to conclude that the rent-to-own industry, and I quote: ''The rent-to-own industry provides a service that meets and satisfies the demands of most of its customers.''
Currently, there is no Federal law governing rent-to-own transactions. While most States have enacted laws regulating the industry, the level of consumer protections afforded by these statutes varies widely from State to State.
I've looked at Mr. Jones' bill, and will tell you that the consumer protections in that bill exceed, by a great extent, the protections in my own State of Alabama.
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Mr. Jones' bill, H.R. 1701, fills a void that presently exists in Federal law by imposing uniform standards requiring the merchant in rent-to-own transactions to make a comprehensive set of disclosures regarding the total cost of the transaction to the consumer. These disclosures must appear on product labels or tags, in advertising and the rental purchase agreement itself. The customer protections included in H.R. 1701 are drawn largely from the recommendations made by the FTC staff in its April 2000 report on the rent-to-own industry.
The bill also establishes, as a matter of Federal law, that rent-to-own transactions are leases, rather than credit sales, which is consistent with their treatment under the laws of 46 of the 50 States.
Consumer advocates take exception to this approach. And we will have testimony here today consistent with their position. They argue that rent-to-own arrangements should be considered credit sales, subject to the wide range of Federal and State consumer credit laws, including the Truth-In-Lending Act.
The subcommittee, in close, and I stress that, in close consultation with the Minority, has invited both proponents and opponents of H.R. 1701 to testify at today's hearing, as well as representatives of the Federal Reserve and the FTC, which would be responsible for interpreting and enforcing the legislation if enacted.
Before recognizing other Members for opening statements, let me commend the gentleman from North Carolina, Mr. Jones, and the gentleman from Connecticut, Mr. Maloney, for tackling what has historically been a contentious issue in this body and crafting a bipartisan bill, that to date has attracted 20 Democratic co-sponsors, including eight Members of this subcommittee.
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At this time, I'll recognize any other Members who have opening statements. Are there any opening statements?
The gentleman from Connecticut.
Mr. MALONEY. Chairman Bachus, Ranking Member Waters, Members of the subcommittee, I want to thank you for holding this hearing today. I also want to thank Mr. Jones and his staff for all the work they've done to craft a bipartisan bill.
I am pleased to be the lead Democratic co-sponsor of this legislation. In April of 2000, the Federal Trade Commission issued a staff report that addressed many of the issues surrounding the rent-to-own industry. Generally speaking, the FTC report concluded that clear and comprehensive disclosures of the rental purchase transaction would benefit both the industry and consumers.
Additionally, the FTC made some specific recommendations regarding the types of disclosure that would benefit consumers. The Consumer Rental Purchase Agreement Act before us today is an effort to begin to implement those recommendations.
I would hope that everyone would agree that giving consumers the information they need to make informed decisions is both good public policy and ultimately, good economic policy as well.
I would also like to address a concern of some that H.R. 1701 would preempt State law. The legislation we are discussing is intended to provide consumers with a minimum level of protection. That is, we intend that H.R. 1701 serve as a uniform Federal floor for consumer protection.
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States would maintain the right to offer additional consumer protections that they deem appropriate in their individual State circumstances.
This legislation both provides the protections to consumers and leaves the appropriate room in our Federal system for State legislatures to chart their own direction for the people they so diligently represent.
Thank you, Mr. Chairman. I am hopeful that we can reach consensus and make progress to improve consumer protection regarding rental purchase agreements. I look forward to hearing from our witnesses during the course of the day.
Chairman BACHUS. Thank you.
At this time, I'm going to divert from the regular order, if I can, and recognize the Ranking Minority Member, Ms. Waters.
Ms. WATERS. Thank you very much, Mr. Chairman. I'm sorry we're a little late. We, as you know, our whip Government is on Thursdays, and we ran a little bit over. But I would like to thank you for calling this hearing on the rent-to-own.
Virtually all first-year law students learn about the rent-to-own industry in contracts class when they study the case of Williams versus Walker Thomas Furniture Company. Walker Thomas sold furniture and electronics on an installment basis here in the District of Columbia. In the Walker Thomas case, customers who had purchased multiple items had their payments credited on a pro rata basis. This had the effect of keeping a balance due on every item as long as there was a balance due on any one of them. Therefore, if a customer defaulted on a debt, no matter how small, Walker Thomas would repossess every item that customer had ever purchased.
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This case stands for the doctrine of an unconscionable contract. Unconscionability has been recognized as the absence of meaningful choice on the part of one party, along with contract terms which are unreasonably favorable to the other party.
In this case, the District of Columbia Court of Appeals found that when a party of little bargaining power signs a commercially-unreasonable contract with little or no knowledge of its terms, the court can determine that the terms of the contract are so unfair that enforcement should be withheld.
While Walker Thomas is no longer in business, the tradition continues today. According to the FTC study, 59 percent of rent-to-own customers have household incomes of $25,000 or less, and 73 percent have a high school education or less.
These consumers often cannot qualify for credit and have little bargaining power. Rent-to-own merchants generally do not permanently disclose the total cost of a purchase, and rarely disclose a cash price that is based on the reasonable price at which merchandise is sold by other dealers.
Customers today frequently pay effective annual percentage rates of 100 to 500 percent, and are often unaware of the true cost of the merchandise or what they would pay if they purchased it in a more traditional method.
The industry claims that these are primarily rental transactions and that only 25 to 30 percent of contracts end in ownership. However, the industry is counting paper and merchandise to determine customer behavior.
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If this method were applied to the purchase of homes, the rate of homeownership would dramatically decline every time someone refinanced without paying off the debt in full.
In addition, if the industry's ''keep rate'' statistic is based on an accurate count of the disposition of merchandise, it is important to know that Rent Way, the second largest rent-to-own chain, has recently discovered that its corporate books show considerably more merchandise than in its store inventory system indicated in the stores.
Rent Way is now under investigation by the Securities and Exchange Commission, (SEC), and the Federal Bureau of Investigaton, (FBI), after misstating their earnings by more than $125 million.
If the second largest company in the industry, representing 1,134 stores, can't trust its own numbers on this issue, how can we?
According to the FTC study, which to my knowledge has had no accounting irregularities, 70 percent of customer transactions end in ownership.
Furthermore, in a case against Rent-A-Center in 1997, the Minnesota Attorney General found that rent-to-own companies obtain 70 percent of their income from customers who obtain ownership of goods as opposed to those who do not. These transactions look like sales on credit, and act like sales on credit, and therefore should be regulated like sales on credit.
Page 9 PREV PAGE TOP OF DOC H.R. 1701 provides insufficient protection to consumers, and, in fact, preempts a number of protections that are in place in State law. But I will let the witnesses address those concerns.
I would like to place in the record a letter from the Attorney General of Vermont, strongly opposing H.R. 1701. Because I believe that rent-to-own consumers deserve strong Federal protection, I'm introducing legislation I previously co-sponsored that was originally introduced by Chairman Henry Gonzalez, the Rent-To-Own Reform Act.
I believe that the most effective way to protect consumers is to subject rent-to-own transactions to the same treatment as credit sales or retail installment sales under Federal and State laws.
The bill that I'm introducing today does that, thereby outlawing 300 percent interest rates and mandating disclosure of key contract terms. This bill recognizes a unique feature of rent-to-own contracts, the consumer's ability to unilaterally terminate the contract. This bill would permit a rent-to-own operator to charge a reasonable termination fee and in return provide the consumer with the unique right to terminate the contract without penalty. This bill also recognizes that rent-to-own operators may provide services that some customers find attractive. Under this bill, rent-to-own operators would be permitted to offer such services, but they would be required to disclose those services up front, and estimate their value.
By requiring such disclosure, the consumer will be able to determine the true cost of renting the product. In short, my bill will provide rent-to-own consumers with the moderate safeguards extended to consumers of credit sales, limits on interests and other fees, mandated disclosures, warranty protections, and prohibitions against abusive collection practices.
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The rent-to-own industry, like other fringe banking industries, including payday lenders and pawnshops, has operated outside the boundaries of Federal law.
I agree with the proponents of H.R. 1701 that the time has come to federally regulate this industry. However, I believe that my legislation will provide real protection to consumers.
I look forward to hearing the testimony of the witnesses and, Mr. Chairman, I certainly appreciate the time that you have allotted me to get this full statement out, and I look forward to hearing from the witnesses. Thank you very much.
Chairman BACHUS. Thank you.
At this time, we'll hear from Mr. Jones.
Mr. JONES. Mr. Chairman, thank you. I will be brief. I would like to thank you first for holding this hearing. I would also like to thank the gentleman from Connecticut, Congressman Jim Maloney, and his staff for their leading role in bringing this bill forward.
Mr. WATT. We don't have many microphones in North Carolina, Mr. Chairman, that's the problem.
Mr. JONES. To the gentleman from Charlotte, thank you.
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Mr. Chairman, I will be brief. I would like to thank you again for holding this hearing. I would like to thank the Congressman from Connecticut, Jim Maloney, and his staff for their leading role in bringing this bill forward.
H.R. 1701 is a common-sense approach to protecting the rights of consumers and to giving certainty to those involved in the now-mature rent-to-own industry.
The bill was first introduced by a Democrat, former Congressman Larry LaRico of Idaho, and has enjoyed a history of broad bipartisan support.
Today, the bill's cosponsorship, as you made reference to, reflects broad bipartisan, geographic, and ideological support. It is a balanced bill that is a win for all concerned, in my opinion.
H.R. 1701 provides for Federal regulation of the rent-to-own industry. It clarifies that the rent-to-purchase transaction is fundamentally different from a credit sale, as is now the case in Federal tax law, as well as in the law in 47 States. It also provides for tough consumer disclosure and protection.
Mr. Chairman, let me add that there are some who believe that this bill is intended to limit, or put a ceiling on, the rights of States to provide consumer protections. Nothing could be further from the truth. This bill is intended to set a minimum standard, or a floor, on protections. If there is legitimate concern that it may do something else, then I will be more than happy to work with all concerned to make sure that our intent is clearly reflected in this bill.
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Mr. Chairman, I look forward to working with you, Mr. Maloney and the subcommittee and with everyone else who wants to make this bill even better than what I think it is.
Chairman BACHUS. Are there any other opening statements?
Chairman BACHUS. Let me stress what I did at the beginning of this hearing. This is not a markup on legislation. This is a hearing. The first witness, in fact, will be the Federal Trade Commission witness, who will testify as to their report.
There is no subcommittee text. We welcome any comments of the witnesses as to what may be needed, in addition to the only bill we have filed addressing this, and I think maybe now we'll have two pieces of legislation.
But, I hope to use the experience we had with the antifraud network to see if we can build consensus on this subcommittee for something that will protect consumers.
I think the appropriate starting point is to listen to the FTC and the Federal Reserve. We're going to recess at this time. Ten minutes after the last vote, we will reconvene. Some of you can follow that on monitors, or you can listen for the second vote to go off and then 10 minutes later, we will reconvene.
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And at that time, we will take the witnesses. The published text was that we would hear from the Federal Reserve first, but in fact, we're going to hear from the Federal Trade Commission first, Mr. Beales. And I think the Federal Reserve is more comfortable with that approach too.
So at this time, we're going to recess to meet 10 minutes after the last vote is posted on the House floor.
Chairman BACHUS. The Subcommittee on Financial Institutions and Consumer Credit will come to order. I appreciate your patience as we went through two votes on the House floor. The first panel is made up of representatives from the Federal Trade Commission and the Federal Reserve System, the relevant divisions or bureaus of those two Federal agencies.
Our first witness will be Mr. Howard Beales, Director of the Bureau of Consumer Protection at the Federal Trade Commission.
The second witness will be Director Dolores Smith, Division of Consumer Affairs of the Board of Governors of the Federal Reserve.
We welcome both of you to the hearing, and look forward to hearing your testimony. At this time we will hear from Director Beales.
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STATEMENT OF HOWARD BEALES, DIRECTOR, BUREAU OF CONSUMER PROTECTION, FEDERAL TRADE COMMISSION
Mr. BEALES. Mr. Chairman and Members of the subcommittee, thank you very much. I'm Howard Beales, Director of the Federal Trade Commission's Bureau of Consumer Protection.
I appreciate the opportunity to appear before you today on behalf of the Commission to discuss a recent report by the FTC's Bureau of Economics entitled ''Survey of Rent-To-Own Consumers.''
I will discuss the findings of the survey and the conclusions of the report, which I hope will be helpful in informing the discussion of rent-to-own issues and policies.
At this point I should add that the views in my prepared statement are the views of the Commission, but my oral statement and my responses to any questions you may have are my own, and are not necessarily those of the Commission or any individual Commissioner.
The rent-to-own industry consists of dealers that rent furniture, appliances, home electronics, jewelry, and other items to consumers. Rent-to-own transactions provide immediate access to household goods for a relatively low weekly or monthly payment, typically without any downpayment or credit check.
Page 15 PREV PAGE TOP OF DOC Customers enter into a self-renewing weekly or monthly lease for the rented merchandise, and are under no obligation to continue payments beyond the current period.
The lease also provides the option to purchase the goods. The terms are attractive to customers and consumers who cannot afford a cash purchase, who may be unable to qualify for credit, and are unwilling or unable to wait until they can save for a purchase.
It is estimated that there are approximately 8,000 rent-to-own stores in the United States serving nearly three million customers and producing $5 billion in annual revenues.
In the past decade, there has been debate regarding the rent-to-own industry. Noticeably absent, however, was an independent examination of the results of the typical rent-to-own transaction.
The FTC staff attempted to fill this gap by conducting a nationwide survey. The survey examined the results of rent-to-own transactions, rather than the transactions themselves. Thus, it did not examine whether rent-to-own customers were aware of the total cost of purchase of the rent-to-own item when they began renting, or whether they performed comparison shopping prior to entering the transaction. The current extent and format of actual industry disclosures were also outside of the scope of the survey.
Regarding customer demographics, as the chart over here shows, the survey found that rent-to-own customers were more likely to be African-American, to have a high school education or less, to live in the South, and to live in a non-suburban area compared to households that had not used rent-to-own transactions.
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The financial characteristics of rent-to-own households are also different from most households. Fifty-nine percent had household incomes less than $25,000. Sixty-two percent rented their homes or their residences, compared to 35 percent of all U.S. households. Forty-four percent had a credit card compared to about two-thirds of all households, and 49 percent had a savings account.
A key factual issue in the debate over whether rent-to-own transactions are sales or leases has been the extent to which rent-to-own consumers purchase the rented merchandise. The industry has maintained that around 25 to 30 percent of rent-to-own merchandise is purchased, and that the rest is returned to the dealer after a relatively short rental period.
The FTC survey found that approximately 70 percent of the rent-to-own merchandise is purchased by the consumer. Regulation of the rent-to-own industry should recognize that important fact.
Regarding the products involved, the most commonly rented items were televisions, sofas, washers, VCRs and stereos. Together, those items were about half of all rented merchandise. Thirty-eight percent of rented items were home electronics products; 36 percent were furniture; and 25 percent were appliances.
In the end, 75 percent of rent-to-own customers were satisfied with their experience. They gave a wide variety of reasons for their satisfaction, noting many aspects of the transaction. Nineteen percent were dissatisfied. Most of those cited rent-to-own prices as the reason.
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Federal legislation, which would specifically regulate rent-to-own transactions, has been proposed several times in the past decade. Currently, however, the transactions are not specifically regulated by the Federal laws that govern other credit or leasing transactions. Instead, they are governed by State law.
Given the high purchase rate that the Bureau of Economics Report found, the report concludes that it is important that consumers know the total cost of the purchase before entering an agreement. Information on the total cost, including all mandatory fees and charges, would allow consumers to compare the cost of a rent-to-own transaction to alternatives, and would be most useful while the customer is shopping.
The best way to provide information at the shopping stage would be to provide it on product labels or tags. Other basic terms of the transaction, including the weekly or monthly payment amount, the number of payments required to obtain ownership, and whether merchandise is new or used, should also be provided on product labels.
The report does not recommend disclosure of cash price. Cash prices are largely arbitrary, because rent-to-own dealers make few cash sales.
Based on the Bureau of Economics Report, the Commission does not recommend Federal legislation regarding the rent-to-own industry at this juncture. Determining whether legislation is needed requires information regarding the transactions themselves in addition to the results of the transaction that were considered in our report.
Page 18 PREV PAGE TOP OF DOC The Commission needs to know, for example, whether consumers currently understand the total cost of rent-to-own transactions, what information they have available at present, and what alternatives to the rent-to-own option they typically consider.
We hope the survey results are helpful to the subcommittee and look forward to working with Congress on rent-to-own issues.
Thank you very much.
Chairman BACHUS. Thank you.
STATEMENT OF DOLORES S. SMITH, DIRECTOR, DIVISION OF CONSUMER AFFAIRS, BOARD OF GOVERNORS, FEDERAL RESERVE SYSTEM
Ms. SMITH. Chairman Bachus, Members of the subcommittee, I'm pleased to offer comments on H.R. 1701, the Consumer Rental Purchase Agreement Act, which would amend the Consumer Credit Protection Act.
H.R. 1701 would establish cost disclosures and substantive protections, among other provisions, for rental/purchase or rent-to-own transactions.
I am the Director of the Federal Reserve Board's Division of Consumer and Community Affairs. We administer a number of the laws that make up the Consumer Credit Protection Act.
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The Federal Reserve Board has not taken a position on H.R. 1701, but I'm glad to share the Board staff's views. Rental purchase transactions, as has been described, involve short-term, renewable rentals of personal property, typically for less than 4 months initially.
Rental purchase transactions are not covered by the Consumer Leasing Act, which applies only to leases that initially exceed 4 months, and these transactions are not credit sales under the Truth-In-Lending Act, because the consumer is not obligated to purchase the property rented.
Since 1984, 47 States have adopted laws governing rental purchase transactions, 24 of these States, since 1990.
Given the existing body of law, the subcommittee is to be commended for holding this hearing to explore the need for Federal legislation with interested parties, including industry representatives, consumer advocates, and State agencies.
Much can be learned about the efficacy of the existing laws and about the States' experience in enforcing them. I expect you will find the FTC's report on rent-to-own customers particularly useful. It has been an important source of information for the Board staff.
Several provisions of H.R. 1701 focus on disclosing information to consumers. Disclosures are most effective when received early enough in the process that consumers can use them as a shopping tool and when they enable the consumer to focus on key costs and terms.
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As to the content of disclosures, in this case, the fact that rental purchase transactions have characteristics of both sales and leases is important to keep in mind. Under H.R. 1701, merchandise tags would provide key cost disclosures for property displayed or offered in a dealer's place of business.
Only 18 States currently require merchandise disclosures, so this is one aspect in which Federal law could directly enhance State law protections. We concur with the FTC's assessment that, because many customers may purchase the property, merchandise tags should show the total cost to purchase the item, as H.R. 1701 provides, and not just the rental fee.
Besides merchandise tags, H.R. 1701 requires more detailed disclosures in connection with the rental purchase agreement. Most of the cost disclosures would be segregated from other information. We believe this approach is effective in calling the consumer's attention to the most important terms.
Let me next say something about preemption. In existing statutes under the Consumer Credit Protection Act, a specific provision in State law generally is preempted only to the extent that the provision is inconsistent with the Federal statute. H.R. 1701 adopts this language. It omits other language used in those statutes which says that a State law is not preempted if it gives greater protection to consumers.
H.R. 1701 would expressly preclude States from requiring an annual percentage rate disclosure, and from subjecting rental purchase transactions to State credit laws, including usury limits. Because of the omitted language, we have had a question about whether the bill intended to limit the State's ability to retain or adopt more protective rules on other aspects of rental/purchase transactions.
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Both Congressman Jones and Congressman Maloney have stated this morning that it is not their intent to bar more protective laws; we encourage clarification on this point.
Finally, you asked us to comment on whether the Federal Trade Commission or the Federal Reserve Board should write the rules to implement H.R. 1701. The Federal Reserve Board has no supervisory relationship with rent-to-own firms. They are not generally subject to Board rules governing credit, leasing, or other financial services, and hence our staff has no direct knowledge of industry practices in the rental purchase market.
Given the Federal Trade Commission's long history in regulating trade practices of commercial firms, the FTC is, we believe, the more logical choice for writing regulations.
And, again, thank you for the opportunity to offer comments on H.R. 1701.
Chairman BACHUS. Thank you. We very much appreciate your testimony.
And let me say, Ms. Smith, one thing you mentioned, which my staff had also mentioned to me, was the preemption. There is a question in my mind whether the text of H.R. 1701 provides that a State law is not inconsistent with the Federal statute if it is found to give greater protection to the consumer. I look forward to working with other Members of the subcommittee to make sure that, at least in their expressions, they do not wish to preempt statutes which give greater protection.
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I appreciate you pointing that out.
Ms. SMITH. Thank you.
Chairman BACHUS. I'd also made note of that.
Consumer advocates argue that rent-to-own merchants should be required to disclose to consumers an APR equivalency interest rate prior to consummation of the transaction. Industry representatives contend that such disclosures would be misleading in the rent-to-own context.
Mr. Beales, what is your view on that?
And, then, Ms. Smith, I'll ask you.
Mr. BEALES. Well, Mr. Chairman, I think the primary difficulty with disclosure of something like an annual percentage rate is the starting point. I mean, it depends on the amount that's financed, or the principal, and the amount that is the additional charges or credit charges. That's very hard to separate out in this kind of a transaction, because the ability to stop payment at any time is an important part of the deal, and something that consumers would surely be willing to pay for, but very hard to price.
And the cash price that you can start with is not a price at which very many transactions actually occur, so it's not a real price in the sense that a market price typically is.
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So the allocation between principal and interest is itself somewhat arbitrary and we think that makes the APR-kind of disclosure very difficult to implement and enforce.
Chairman BACHUS. And I think that the States that have looked at that have agreed with what you are saying.
Ms. SMITH. I would, first of all, agree with the technical difficulties that Mr. Beales has pointed out, and will just say by analogy that the Board did consider a similar question when we were in the process of revising the regulations to the Consumer Leasing Act. And there, after much deliberation, what the Board finally did decide to do was not to have a requirement for an annual lease rate, and further, we still then had to deal with the question of what if State law requires such a disclosure, what should the lessor be permitted or required to do?
And what the Board ultimately did was to permit the disclosure, if required by State law, but also to require that there be a disclosure alongside to the effect that this percentage may not measure the overall cost of financing the lease. And moreover, the regulation prohibits the use of the terms ''annual percentage rate,'' ''annual lease rate,'' or ''equivalent terms.''
Chairman BACHUS. As you said, the Federal Reserve Board, I think what you're saying is that you don't want to write the regulations for the rental-purchase industry?
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Ms. SMITH. That is what we said.
Chairman BACHUS. Would that change if you not only wrote the regulation, but you had the enforcement powers too?
Ms. SMITH. Well, that would be a little unusual in the sense that currently we enforce regulations through our bank examinations. We have regular examinations of banks. They take place with the frequency usually from once a year to one-and-a-half years and so forth.
With the rent-to-own firms, it would be difficult to envision an enforcement process where we would be venturing into new territory as far as this particular market is concerned.
Chairman BACHUS. Director Smith has testified, Mr. Beales, that your agency has more experience with rent-to-own. Do you agree with that assessment?
Mr. BEALES. Well, we have probably more experience with the transactions themselves and with the rent-to-own industry as it currently exists. Where the Federal Reserve would have a very clear advantage over us in writing regulations is in making sure that they fit with the rest of the consumer credit protection structure. I mean, those regulations need to use terms consistently and not create uncertainties under Truth-In-Lending, or under the Consumer Leasing Act, and the Fed's comparative advantage would be in making sure that regulations under rent-to-own legislation were consistent with the rest of the regulatory structure.
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Our comparative advantage would be familiarity with the nature of the transactions and the nature of the industry, and I think wherever jurisdiction would write the rules, we would work together to figure out what they should look like.
Chairman BACHUS. And I'll just close with maybe a yes or no, and I don't like to ask that, and if you feel uncomfortable then you can decline. But, you're disinterested in writing some regulations, are you?
Mr. BEALES. No, we're not.
Chairman BACHUS. OK, thank you. I appreciate your testimony.
Ms. WATERS. I guess this is for Howard Beales. You state in your testimony that the Board agrees with the FTC's conclusion that consumers need to know the total cost to purchase for purposes of comparison shopping. The bill before this subcommittee, H.R. 1701, proposes to provide consumers with a disclosure, which it terms the rental/purchase costs that it excludes, among other things, all charges or fees otherwise payable in a cash transaction for comparable property. Any insurance or liability waiver premiums are charges that are not a factor in the merchant's initial approval of the transaction, all initial payments to be paid up-front to initiate their agreement, and any sales or other taxes.
Can this be characterized in any way as meeting the Board's idea of providing the total cost of purchase to the consumer?
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Ms. SMITH. I think that question was really directed to me rather than to Mr. Beales.
Ms. WATERS. OK, all right.
Ms. SMITH. And I would say that from my understandingwell, that you have a point about whether it represents the total cost of credit, and that is something that would have to be considered.
Ms. WATERS. I'm sorry. Are you saying that what is disclosed at this point is not adequate if you consider that the total cost of credit should be disclosed?
Ms. SMITH. I'm not sure I understand the question. But that may have to do more with my understanding of the exact wording of the text in the statute.
Ms. WATERS. You do state that, I suppose it was you who stated that consumers need to know the total cost to purchase. Is that correct?
Ms. SMITH. Yes.
Ms. WATERS. Both of you did. Does the bill, H.R. 1701, does it meet that test?
Ms. SMITH. Well, my understanding is that some of these items are items that are optional, or that are otherwise, even under Truth-In-Lending, are not included in the cost of credit. So that's the standpoint from which I am approaching it, which may be different from a general understanding of what total cost of credit means.
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Ms. WATERS. What is your definition of total cost to purchase?
Ms. SMITH. Total cost to purchase to me would signify the costs, including all mandatory costs, that the consumer would be paying to the rent-to-own dealer.
Ms. WATERS. So if we look at H.R. 1701, can we make a determination about whether or not there is disclosure that would give the consumer all of the information that would determine total cost? Do we need to have more in H.R. 1701? If H.R. 1701 was to become law, do you think it should have more information in it so that consumers could know the total cost to purchase based on your definition?
Ms. SMITH. I would have to defer to witnesses on the next panel who have greater familiarity with this area and who would better tell you what exactly are the items that ought to be included in the total cost disclosure.
Ms. WATERS. OK, thank you.
[Ms. Smith subsequently provided the following information:
[Rep. Waters essentially asked whether the ''rental purchase cost'' as defined in the bill provided adequate disclosure to consumers of the total cost to purchase an item.
[Under Section 1002, the rental purchase cost would be disclosed to consumers on merchandise tags or labels for items displayed in a dealer's showrom and would be disclosed also in connection with each rental purchase contract. The term, as generally defined, is the sum of all charges payable as a condition of entering into a rental purchase agreement or acquiring ownership of the property covered by the agreement. Under the bill, this general definition does, however, specifically exclude certain items from the rental purchase cost: (1), costs payable in a cash transaction for comparable property; (2), taxes and fees paid to public officials; (3), fees for optional products and services; and (4), fees paid for voluntary insurance or liability waivers if the consumer requests the coverage after receiving a cost disclosure.
Page 28 PREV PAGE TOP OF DOC [To the extent that the definition of ''rental purchase cost'' includes all charges required to purchase the property, the term is comparable to retail-store price tags (which similarly exclude taxes and optional amounts such as certain insurance protection). Thus, it could suffice for disclosures to consumers on merchandise tags or labels.
[Board staff believe the rental purchase cost disclosure would not suffice as a disclosure of total purchase cost under a particular rental-purchase agreement. We believe that, in that case, the required disclosure should include items such as taxes and optional fees, such as insurance premiums, that the consumer would be paying in the transaction.
[Under H.R. 1701, the total purchase price is disclosed as part of the payment schedule, which may not sufficiently highlight the information. It would probably be better given as a separate disclosure.
[Similarly, the multiple cost disclosures required under Section 1005, in connection with the rental-purchase agreement, may obscure key pieces of information that consumers need in deciding whether to enter into an agreement. Among items listed, for example, it may not be necessary to include the rental payment and rental purchase cost if the periodic payment and total sale price are disclosed. The bill would also require disclosure of the difference between the cash price and the rental-purchase cost. The significance of this disclosure is not clear.]
Mr. BARR: [PRESIDING]. Does the gentlelady yield back the balance of her time?
Ms. WATERS. OK, we have some other stuff here.
Your survey indicates that 70 percent of the merchandise leased by rent-to-own outlets is purchased by the customer, and that 67 percent of customers intended to purchase the merchandise at the outset of the transaction.
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This corresponds to the finding of the Minnesota Attorney General that 70 percent of all the revenues received by rent-to-own operations in Minnesota came from individuals who acquired ownership of merchandise. If these findings show the overwhelming majority of rental/purchase transactions are, in fact, alternative installment purchases, why shouldn't they be regulated the same and have the same consumer protections as other rental installment sales transactions? Should they be on entirely different terms, as proposed in H.R. 1701. If they're purchasing, if really they end up as purchases, why wouldn't they be regulated in the same way?
Mr. BARR. The time of the gentlelady has expired, but certainly the witnesses can take time to respond to the question.
Mr. BEALES. Well, if we think about the purchase rate as indicating that this is credit, then I guess the ones that aren't purchased would be defaults, and that would be an extraordinarily high default rate in a credit kind of transaction.
There's clearly a credit element to these transactions, and the fact that 70 percent of them result in purchases, I think, demonstrates that. But there are also elements that aren't credit and that are very hard to fit into the credit framework.
Mr. BARR. Thank you.
The gentleman from North Carolina, Mr. Jones, is recognized for 5 minutes.
Mr. JONES. Thank you, Mr. Chairman.
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Mr. Beales, how well do the consumer protections in H.R. 1701 address some of the concerns in your report?
Mr. BEALES. Well, I think conceptually, the approach that it takes is certainly the kind of approach that is consistent with what our report recommended. I think there are some issues about what's included and what's not included where we're not clear on which items should be part of the rental/purchase cost.
The language, for example, talks about taxes and other costs that are payable on sales would not be included. The taxes are clear, but the other costs that might be in or out, we're not sure about.
Some charges have to be taken into account under the statute, but under the approach in most of the credit legislation, a particular charge is either in or out, and we're not sure whether what's taken into account fits with that other legislation.
We're also not clear on how voluntary charges would be handled for optional kinds of services or add-ons, and whether those are in or out, or whether ''voluntary'' has the same kind of meaning and structure as it does under Truth-In-Lending, or whether there's something different here.
But conceptually, the approach is the kind we recommend. In the details we're not so clear.
Page 31 PREV PAGE TOP OF DOC Mr. JONES. Well, let me say, and again I want to thank Chairman Bachus, who is not here, this was the purpose that Mr. Maloney and I, in introducing this legislation, we realize that there is a problem that needs to be dealt with, and that starting with this hearing gives us an opportunity on both sides of this issue to see if we can move forward with legislation that does protect the consumer, but also, in my opinion, helps the rent-to-own business.
So, Mr. Chairman, I just wanted to get that statement from Mr. Beales and we'll look forward to going forward, and I yield back my time.
Mr. BARR. I thank the gentleman from North Carolina.
The gentleman from North Carolina, Mr. Watt, is recognized for 5 minutes.
Mr. WATT. Thank you, Mr. Chairman.
I want to focus on two separate things. One is the question of whether there ought to be a Federal standard or a Federal law on this. There has not, as I understand it historically, been any kind of Federal law in this area.
Is that correct?
Ms. SMITH. Right. There was mention of a Federal law for the first time in the early 1980s.
Page 32 PREV PAGE TOP OF DOC Mr. WATT. OK. I'm looking at page two of your testimony, Ms. Smith, your printed testimony, not necessarily the testimony you gave.
But you say in the middle of the page there, in the second full paragraph, ''For firms operating in multiple States, a uniform regulatory framework eases the compliance costs.''
I'm prepared to concede that, but I'm wondering whether that, in and of itself, creates a compelling Federal interest in having a Federal standard at all or whether this ought be left to the States?
Ms. SMITH. I was not offering that as a reason
Mr. WATT. OK. I didn't mean to imply that you were offering it as a reason. I guess the point I'm trying to ask is, are there other compelling Federal interests that the Fed has identified that would justify having a Federal statute on this issue, other than the ease of compliance cost?
Ms. SMITH. We are not expressing support for a Federal law per se.
Mr. WATT. But
Ms. SMITH. But are there other reasons.
Page 33 PREV PAGE TOP OF DOC Mr. WATT. This is a different question. The question is, are there any other compelling reasons for having a Federal standard?
Ms. SMITH. A compelling reason might exist if the Federal law provided greater consumer protections than are available under State law.
And our position basically, I think, coincides with this subcommittee's view or approach, which is that there is a balancing that needs to take place in considering the protections that consumers have under existing law, the potential effect of preemption if preemption were to occur of the State law, and then and balance that against benefits to the industry that would result from this.
But, it truly is a balancing of these factors before you could reach a conclusion that Federal legislation is warranted.
Mr. WATT. OK. I'm not sure I got exactly where I was trying to get to on that, but I'll go in another direction, because I'm going to run out of time.
On the report, or the study that you did, Mr. Beales, you indicateand I'm on page five of your written testimony, the fifth bullet down''merchandise purchased from the rent-to-own store was rented for an average of 14 months before it was purchased, with 47 percent purchased in less than a year. Merchandise returned to the rent-to-own store was rented for an average of 5 months before being returned, with 81 percent returned within 6 months.'' I presume these are the ones that were actually returned.
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I'm wondering whether inside that time framework, there may be some rational basis for setting up two different standards, one for shorter-term rent-to-own situations and one for longer-term rent-to-own situations which typically result in purchase.
Mr. BEALES. I think the difficulty would be figuring out at the time the transaction occurs, whether it's short-term or long-term. I mean, we can look after the fact and say, if you didn't buy, you typically returned it fairly quickly, but we're looking after the fact.
To regulate the transactions differently, we'd have to look before the fact and figure out how we could tell whether this was a short-term transaction or a long-term transaction. And what may happen in some chunk of cases is, they start out short-term, but people like the merchandise and don't want to replace it, keep it longer and longer, and then end up buying it. So it may switch from one to the other in midstream as well.
Mr. WATT. Thank you, Mr. Chairman.
Mr. BARR. The time of the gentleman from North Carolina has expired.
The gentleman from Connecticut, Mr. Maloney, is recognized for 5 minutes.
Ms. MALONEY. Thank you, Mr. Chairman.
Page 35 PREV PAGE TOP OF DOC I think what I'll do is just follow up on Mr. Watt's line of questioning in a sense. We have a number of States that have virtually no regulation at all so this legislation provides, as Mr. Jones and I had indicated earlier, a floor for that.
We also have, and this will be in the form of a question, we also have an industry which is certainly not localized to any State. This isn't necessarily done outside of interstate commerce. The merchandise is procured from the stream of interstate commerce is my understanding. And in fact, the industry is organized, if not on a fully national basis, it's certainly organized on a regional basis with companies that have outlets in a variety of States.
So, is it correct to say that certainly the rent-to-own industry is quite deeply engaged in interstate commerce?
Mr. BEALES. I would agree with that.
Ms. MALONEY. Any dispute over that?
Mr. BEALES. I don't think so.
Ms. MALONEY. Thank you. That's the only question I had, Mr. Chairman.
Mr. BARR. Thank you.
There being no further questions, we very much appreciate Mr. Beales and Ms. Smith, you both being with us today, and if there are any additional materials you wish to submit, the record will remain open for 5 days.
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Ms. SMITH. Thank you very much.
Mr. BEALES. Thank you very much.
Mr. BARR. Thank you very much.
Now I would like to effect a transition here and invite our second panel of witnesses to come forward, taking their seats.
I would like at this time to introduce to the subcommittee, Mr. David J. Gilles, the Assistant Attorney General, Wisconsin Department of Justice;
Mr. James Byrd of Byrd's TV, d/b/a Curtis Mathes, Inc., a rent-to-own businessman;
Ms. Mamie Salazar Harper, Secretary, Board of Directors, Association for Progressive Rental OrganizationsAPROon behalf of the rent-to-own industry;
Ms. Margot Saunders, Managing Attorney with the National Consumer Law Center.
On behalf of Chairman Bachus and all Members of the subcommittee, I would like to extend a warm welcome to the four of you today. We appreciate your taking time from your very busy schedules to be with us today to provide background commentary and answers on this important piece of legislation, H.R. 1701.
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As I think you all know from sitting through the previous panel, your statements, as submitted, will be included in their entirety in the record, and if each one of you would like to take 5 minutes or less to highlight those portions of your testimony which you believe are most important for purposes of discussion this morning, we certainly invite you to do so.
And then, as with the previous panel, for those Members of the subcommittee that are present and do have questions, each Member of the subcommittee will be recognized for 5 minutes of posing questions, making comments, and receiving your answers.
And with that, Mr. Gilles, if we could start with you, please?
STATEMENT OF DAVID J. GILLES, ASSISTANT ATTORNEY GENERAL, WISCONSIN DEPARTMENT OF JUSTICE
Mr. GILLES. Thank you very much, Mr. Chairman, Ranking Member Waters, and Members of the subcommittee, on behalf of Wisconsin Attorney General Jim Doyle, I would like to thank you for the invitation to appear before you today concerning Federal regulation of the rent-to-own industry.
General Doyle has asked me to testify today in opposition to the bill that's drafted, because it would take away significant and meaningful protections from Wisconsin consumers, and particularly from rent-to-own customers who are among low-income customers in our State who have very few other choices.
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My name is David Gilles, and I am an Assistant Attorney General with the Wisconsin Department of Justice, and I work in the Office of Consumer Protection. For more than 25 years, I've prosecuted consumer protection cases, including a number of cases involving the rent-to-own business.
There are three main points I would like to make this morning to explain why the proposal that you're considering to provide Federal regulation for rent-to-own programs would take away existing protections from Wisconsin consumers.
Those three points are as follows:
First, Wisconsin is one of the three or four States that treats rent-to-own programs as consumer credit sales; this bill would preempt that.
Second, this Wisconsin law has helped consumers, and particularly rent-to-own customers in the past.
And third, from the perspective of a consumer prosecutor who enforces consumer protection laws, while well-intended, this proposal would not provide a meaningful tool for State Attorneys General to prosecute unscrupulous rent-to-own companies that are trying to circumvent the standards that you're looking to establish.
Turning then to the first point. In Wisconsin, and this is perhaps the most important point, rent-to-own transactions have been regarded as consumer credit sales under three Court of Appeals decisions that have been in place for almost 15 years. Under these decisions, rent-to-own companies have to disclose the annual percentage rate of interest. Illustrations of what this means are included as attachments to my prepared remarks, but let me give you an example.
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In 1998, a customer obtained used living room furniture that cost a cash price of $525 under a rent-to-own program. After 24 months of weekly payments of about $25, that customers wanted to own the merchandise and would have paid $2600. The effective rate of annual interest was 270 percent.
Now under the Consumer Act in Wisconsin, interest rates are not limited. Rent-to-own companies could continue to charge as much as they want. In fact, lenders in Wisconsin routinely disclose interest rates of 500 percent and they are doing a fairly good business, I understand.
For those consumers who intend to purchase, this would be very useful and helpful information. In Wisconsin, there is a rent-to-own contract form that is approved for use that includes interest rate disclosures so the industry would know exactly how to compute these requirements.
Turning to the second point. The Wisconsin Consumer Act has helped low-income customers in Wisconsin. Our office, in the mid-1990s, had a lot of complaints about overreaching and unfair collection practices. We had complaints that described rent-to-own collectors going into people's houses when they were gone and taking merchandise that they were late in paying.
We had complaints about people receiving letters from rent-to-own companies threatening criminal prosecution. We filed a case, a complaint against one of these companies and eventually settled the case where the company paid $25,000 in forfeitures and was subject to an injunction and made restitution. If we had not had the Consumer Act in place, we could not have done that.
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In Wisconsin, under the Consumer Act, before someone goes out and repossesses merchandise, they have to go to court to get a judgment, or at least afford due process opportunity to the customer. This Act would take that away.
Another example of how the Consumer Act has helped is that rent-to-own customers who have allegedly suffered violations of the Consumer Act have been represented in private class actions that have returned over $16 million to thousands of rent-to-own customers in Wisconsin. These remedies that are used to help those people would be taken away by this Act.
The third point I wish to make is that the bill, in my opinion, does not provide very helpful useful tools to deal with unscrupulous practices by rent-to-own companies, setting aside the question of whether or not there should be interest rate disclosure. I want to point out three main problems.
The first is preemption. It's clear today that it is uncertain as to the scope of preemption under this bill, but what is certain, and I can assure you I can guarantee will happen, that any defense attorney faced with a prosecution by a State attorney general will raise preemption and that will delay prosecution.
The second point is that the bill does not provide traditional consumer protection remedies. There's no provision for a State attorney general to get an injunction. There's no provision authorizing restitution. There's no civil penalty involved and if the bill preempts all State law, then the attorney general really doesn't have many tools to go in to deal with fraudulent operations under this bill.
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The third point is that particular provisions, some of them don't provide meaningful protections, and the example I would like to give is the requirement that television commercials and radio announcements, when they make a specific statement about how much you have to pay, have to include other information. That's similar to what I call trigger terms in a credit transaction where someone says, if you pay so much a week, you can own a car or something like that. In that context, when those trigger terms are made, additional information has to be provided.
Well, if you look in this bill, although it says additional information has to be provided, the way it has to be provided, it's permitted to be provided by disclosing only an 800 number that someone has to call to get the other information. Now, if the initial information is deceptive, if a rent-to-own company says, ''Own a TV for $5 a week or $10 a week, come visit us,'' and the only way you get the other information, well, the deception isn't cured, the harm has been done, someone has been influenced by that ad, without it having been put in a meaningful context.
And I submit that the only type of ads that you would see under this proposal are ads that say, rent to own this for $20 a week, and give an 800 number, and who is to know when you would get the meaningful information or the additional information when you call that 800 number?
In summary, and in conclusion, I would like to again say that this proposal does not set a floor, it certainly doesn't set a floor for consumer protection in Wisconsin. It would take away Wisconsin's Consumer Act prohibitions against deceptive advertising that require disclosure, it would take away protections against deceptive and overreaching sales practices, it would take away protection against unauthorized, involuntary repossession. It would take away protections against overreaching collection tactics, and it would eliminate remedies currently existing under Wisconsin law.
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And for these reasons, the Wisconsin Department of Justice and Attorney General Jim Doyle oppose this bill.
Thank you very much. I again appreciate the opportunity to be here today, and I'd be happy to answer any questions that Members of the subcommittee may have.
Mr. BARR. Thank you very much, Mr. Gilles.
They've called a vote on the floor so that we'll have to, hopefully very briefly, adjourn the hearing here so Members can go vote. I'm informed it is just a single vote, so it shouldn't take too long, certainly long enough if you all need to take a quick break, and we'll reconvene as soon as the vote is concluded.
Mr. BARR. If we could reconvene please. Thank you again, Mr. Gilles.
Mr. Byrd, if you would please, sir.
STATEMENT OF JAMES E. BYRD, OWNER, BYRD'S TV SALES, SERVICE AND RENTAL, FLORENCE, SC
Mr. BYRD. Thank you.
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Mr. Chairman, Members of the subcommittee, I would like to thank you for inviting me to testify today regarding H.R. 1701. My name is James Byrd and I am the owner and operator of Byrd's TV Sales, Service and Rental in Florence, South Carolina. I'm also a member of the Association of Progressive Rental Organizations, (APRO).
I have been in the consumer electronics business for 42 years. I started in 1959 after graduating from Denmark Technical College with an electronics and television technician diploma. At first, I opened my business doing radio and television repair service only. In 1963, I expanded my business into radio and television sales and service, and I have been at the same location since that time.
Byrd's TV is a family business. Over the years, all four of my children and my grandson have worked in the business. By the early 1980s, increased competition from large electronic dealers and discount stores forced me to re-evaluate my business strategy. In 1982, I added furniture and appliances to my product mix. This helped me to make up the loss of the electronics business.
I found that some of my customers could not qualify for credit and some had temporary needs. To meet these special needs, I also began to offer rent-to-own. Since I began to offer rent-to-own in 1983, my business has grown substantially. Today, about 70 percent of my business is rent-to-own, and the other 30 percent is a combination of retail sales and repairs.
You might wonder why a rental dealer in South Carolina is interested in Federal rent-to-own legislation. This may seem like a matter that only the large companies would care about. I am supporting this legislation for two reasons. First, it will raise the standards in the rent-to-own industry. Because of my concern about the well-being of this industry, I have been an active member of APRO for approximately 15 years, and I have supported its effort to improve the industry through legislation and dealer education. I believe improving the standards in this industry will increase the public confidence in rent-to-own and help the industry grow and prosper.
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Second, the long-term viability of this industry is of great importance to me. If you think about it, from my perspective, I have more at stake than large companies do. My entire livelihood and future and my whole life earnings are in my business in South Carolina.
Reclassification of the transaction as a credit sale, rather than a lease in South Carolina would destroy the business I have worked hard to build. That is why Federal recognition of the transaction as a lease is important to me.
I hope that someday my grandson, Derrick, will take over my business and continue to provide the high level of customer service and satisfaction that I have provided for 42 years. Passing H.R. 1701 would help ensure that is possible.
Thank you for your consideration. If you have any questions, I will be glad to answer.
Chairman BACHUS. [Presiding] Thank you, Mr. Byrd. You actually almost gave a 5-minute statement, which is unusual, so I want to compliment you on that.
Mr. BYRD. Thank you.
Chairman BACHUS. Ms. Harper.
Page 45 PREV PAGE TOP OF DOCSTATEMENT OF MANUELA S. HARPER, SECRETARY, BOARD OF DIRECTORS, ASSOCIATION FOR PROGRESSIVE RENTAL ORGANIZATIONS, ON BEHALF OF THE RENT-TO-OWN INDUSTRY
Ms. HARPER. Thank you, Chairman Bachus and Members of the Financial Institutions Subcommittee. It is my pleasure to have this opportunity to talk to you today about my business and H.R. 1701.
My name is Manuela Salazar Harper, but my friends and customers call me ''Mamie.'' I'm a businesswoman from El Paso, Texas. I own and operate four rent-to-own stores. I've had my own business for 10 years. My company employs 14 persons to work for me, and we've served the citizens of El Paso and Canutillo, Texas, and Sunland Park, New Mexico, during that time.
I'm extremely proud of the fact that I, a second-generation Hispanic-American woman, have built my own business from the ground up. I can provide my employees with a middle class lifestyle while offering a package of services and goods for my customers.
For many of you, the concept of rent-to-own may be unfamiliar. Basically, APRO members rent household durable goods such as appliances, furniture, electronics, and computers. We rent by the week or by the month on an agreement that's renewable at the option of the customer, but does not obligate the customer even to make another payment.
Our customers never go into debt with us. Likewise, other merchants use this transaction for other types of goods. For example, the music and band instrument business. If my son tells me he wants to learn how to play the trumpet, I'd rather not go out and spend a thousand dollars to purchase the instrument, when I can go on a rental/purchase transaction and, with the convenience and flexibility that it offers, I can rent that trumpet with no obligation to own, but with the option to own.
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We also provide full service on the rented goods during the term of the agreements. If, for any reason, we are unable to repair the item in the customers homes, we provide temporary replacement items or loaners, while we repair the original rented item.
This commitment to provide full service and replacement merchandise extends as long as the agreement is in effect and additionally applies whether the merchandise is new or used.
When our customers choose to terminate their rental agreements, and they can do this at any time for any reason or for no reason, we simply pick up the merchandise and there are no charges to the customer.
The predominant portion of our business involves serving customers who need and want nice things for their home and their family, but they may not have the cash, the credit, or the present desire to go out and buy these directly. Due to past credit problems, financial instability, and future uncertainties that many of our customers face each and every day, they need and want quality products, financial flexibility and convenience that our transaction affords them.
APRO members support H.R. 1701, the Consumer Rental Purchase Agreement Act, because we believe that it balances the interest of the consumers and the concerns of the industry. H.R. 1701 incorporates consumer-oriented improvements over Federal bills introduced in prior years. It adopts the FTC policy recommendation on how best to disclose the total costs of a rental/purchase transaction.
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For instance, we ensure that all rental merchandise would bear a label or tag that provides the price of the merchandise, if purchased for cash, the rental payment amount, the total number of payments required to acquire ownership, whether the merchandise is new or used, and the total cost of ownership that consists of the sum of all rental payments and any other mandatory fees or charges.
This is full disclosure that is also applicable to any of our advertising that in ads that we run, whether they are print, radio, or television, we disclose the cost outline for the merchandise, that it is a rental/purchase transaction, the amount, the timing, the number of the merchandise payments, and informing the customer whether the product is new or used. So this is full disclosure.
Also, H.R. 1701 strengthens the enforcement provisions in response to concerns raised by consumer advocates. H.R. 1701 would raise the standard for disclosure and other practices in many States. This enhanced, but fair regulation would add to the on-going efforts of dealers like myself and Mr. Byrd, who are trying to upgrade the image of our industry.
Additionally, long-term benefits accrue of having a Federal stamp of legitimacy akin to a ''Good Housekeeping Seal of Approval'' that this bill would provide. For some of our dealers, this would provide better financing options for startup and expansion plans. The bill would provide stability and certainty for the five publicly-traded companies.
Enactment of H.R. 1701 would represent a final, unambiguous legal determination that our transaction is not properly characterized as a form of consumer credit, but is something entirely different and unique. Every day, we face the threat of lawsuits alleging that the Federal Truth-In-Lending Act or the Consumer Leasing Act, applies to our transactions.
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Many of our members have operations in more than one State and this bill will help reduce the burden of regulatory compliance. Even if I'm doing business in one State, like I do in Texas, but I also have customers in New Mexico, with H.R. 1701, I can use one set of agreement forms and one version of advertising disclosures instead of two or more.
For these reasons, we ask you to support H.R. 1701.
Thank you, Mr. Chairman, and Members of the subcommittee.
Chairman BACHUS. Thank you, Ms. Harper.
Ms. Saunders, we look forward to your testimony.
STATEMENT OF MARGOT SAUNDERS, MANAGING ATTORNEY, NATIONAL CONSUMER LAW CENTER
Ms. SAUNDERS. Thank you, Mr. Chairman, Members of the subcommittee. My name is Margot Saunders and I am here representing the low-income consumer clients of the National Consumer Law Center, the Consumer Federation of America, Consumers Union, and the United States Public Interest Group.
Since I graduated from law school 23 years ago, I have had the privilege of representing low-income consumers almost consistently, first in legal services in North Carolina, and in the last 10 years, up here in DC with the National Consumer Law Center.
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Something is wrong with this picture. The consumer advocates are not asking for this bill. In fact, if you would like our input on a truly consumer-oriented bill to protect the rent-to-own customers that we represent, we would be very happy to work on one.
But this is not a consumer protection bill. The one single purpose of this bill is to protect this industry from potential liability.
There are a myriad of things wrong with the bill, and I will go through the problems. There has been a lot of discussion about preemption. The language in the bill leads us to believe that it would preempt many better State laws. I went through the State laws of almost every State, and found, in the largest 15 States, which represent 55 percent of the population, that there are better consumer protection provisions in those State laws.
If the intent of this bill is not to preempt these better provisions, that's great, but the bill needs to be amended to say that. I think there's also a misconception about what the rent-to-own industry really is. There are 5,000 stores that are members are APRO.
According to the Association of Progressive Rental Organizations, 4400 of those stores are owned by five companies. This is not an industry that is all mom and pop shops. It is almost completely dominated by five large companies.
I would also like to address very quickly the difference between the FTC figure on the keep rate, how many rent-to-own customers actually achieve ownership, and the industry's statistic. The industry says 26 percent, the FTC says 70 percent.
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We believe that the distinction is because the industry is counting contracts. They look at each contract and say, how many of these contracts result in an ownership? The FTC is counting customers. They asked the customers, when you entered this, how many of you did achieve ownership? Those two numbers are entirely consistent based on this different perspective, and the scary thingwhen you realize the different perspectiveis that 50 percent of rent-to-own customers are then paying more than the minimum required on a single rent-to-own contract to actually achieve ownership. So it costs them even more.
In terms of meaningful consumer protections, we do think that these transactions should be credit sales. However, even if we walk away from that position, we can develop significant consumer protections while treating these transactions as rent-to-own. But the first such protection requires a limit on the total of payments. There's got to be a definition of cash price, which actually means something. There's got to be reinstatement provisions that protect the consumer after a default.
There's been a lot of discussion about disclosures. My seat mate next to me, Ms. Harper, just talked about the tag disclosures. We agree. Tag disclosures that a consumer can look at right in the store, while they are deciding whether or not to buy or to rent-to-own a particular item, are the single most valuable disclosures one can make.
It is very interesting that this House bill, H.R. 1701, provides no liability for failure to make tag disclosures unless the consumer can show actual damage for the failure to provide them. Now how can a consumer show actual damage for the lack of disclosures? That standard is impossible to meet.
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I'd like to highlight one other point very quickly. This industry pushes on when a rent-to-own customer agrees to a number of additional charges over and above the simple cost of buying or renting to own the item.
One of those charges is LDW, Lost Damage Waiver coverage. This is a particularly heinous fee. The common law says that when a lessee rents a piece of property and the property is destroyed or lost through no fault of the lessee, there is no liability on the lessee; the loss falls to the lessor.
But this industry deliberately, by contract, switches the burden of loss, putting it on the lessee, the customer, and then says to the customer, if you want to avoid that potential for loss, you've got to pay an additional fee, the LDW fee, which is often a significant portion of the total cost. Under this bill, that fee itself would not even be included in the total of payments.
I represent a number of consumer groups in this town and many, many consumers across the country. We stand unalterably opposed to this bill, but we are very happy to work on a true consumer protection bill.
Chairman BACHUS. I appreciate that.
Mr. Gilles, I was an Assistant Attorney General, too, from the State of Alabama. My question, reading your testimony, I take it you are here representing the consumers of the State of Wisconsin, or the people, citizens of Wisconsin.
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Mr. GILLES. Well, I'm here at the direction of Wisconsin Attorney General Jim Doyle, who is responsible, as elected by the citizens of Wisconsin, and is responsible for enforcing Wisconsin's consumer protection laws.
Chairman BACHUS. And I know it sounds loud to you, but if you will pull those microphones closer to you. Just yank on them and pull them right up to you. You can't be too loud.
I know you are concerned about the enforcement of your existing Wisconsin law which, according to your testimony, is a strong law and is attempting to protect consumers as the people of Wisconsin have chosen.
Your main concernor is this fair to say? Your main concern is that we don't do anything in this legislation which preempts Wisconsin law?
Mr. GILLES. That certainly is the primary concern that we have, Mr. Chairman.
Chairman BACHUS. And would you be willing to work with us to see that the bill does that?
I think also, Ms. Saunders, you mentioned, that you gave a figure that you believed 15 States, representing 52 percent of the consumers, may have stronger laws today. I know you both expressed that this is major concern of yous.
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Mr. GILLES. Mr. Chairman, we would certainly be willing to work with the subcommittee to ensure that Wisconsin's approach to rent-to-own practices is not preempted.
Chairman BACHUS. OK. Let me move on to another thing Ms. Saunders mentioned, and I actually had questions for the first panel, and I was limited to 5 minutes too. I'm not sure anyone asked, but there is a discrepancy in the purchase rate. The FTC says one thing, the industry says another.
Now I might say, Ms. Saunders, that maybe with my legal background, I wouldas opposed to a survey which is the FTC, I think I would be more inclined to look at the hard data, the transactional data that the industry supplies, as opposed to a memory of a consumer over the phone. You know, a survey can misstate, depending on how the question is posed. How would you respond to that? Do you believe there's misrepresentation?
Ms. SAUNDERS. Mr. Chairman, I think the problem is not the memory of the customer, I think it's the different way they are counting. I think the FTC is counting, ask the customer, did you achieve ownership, and the answer is, yes, they achieved ownership. But the customer may not distinguish, and is probably not distinguishing between contracts. The fact is that the dealer is distinguishing the achievement of ownership between each separate contract. So that's a way to explain the discrepancy.
Also, in a number of lawsuits, and I can get you the citations for those lawsuits, the discovery indicated in Minnesota, and perhaps in Wisconsin, that the ownership keep rate is closer to the 70 percent rate rather than the 26 percent rate.
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In other words, the discovery provided the plaintiffs in the lawsuits from the industry itself has showed the number is closer to the higher number.
Chairman BACHUS. Let me ask Ms. Saunders, and Ms. Harper can respond to this, the 15 States you mentioned, Texas or South Carolina, were they included in those 15 States?
Ms. SAUNDERS. Texas and South Carolina were not included, no.
Chairman BACHUS. Texas is?
Ms. SAUNDERS. I did not look at South Carolina. I'm sorry, I had only one day to prepare the testimony, so I didn't look at every State. I do not recall looking at South Carolina or Texas.
Chairman BACHUS. OK. The 15 States you're talking about, are any of them Southern States?
Ms. SAUNDERS. West Virginia, Tennessee. Actually Texas I did look at. I'm sorry. Texas includes limitations on late fees and fees for reinstatement that are not found in this bill. West Virginia has a limitation on total of payments and a definition of cash price, which is better than this bill. North Carolina has a much better bill than this bill, which is certainly a Southern State.
Page 55 PREV PAGE TOP OF DOC Chairman BACHUS. What about those States like Alabama, in which the law doesn't rise to H.R. 1701? What if we did put a provision in that said any State law that has stronger enforcement survived, then would not legislation of this type be a step forward?
Ms. SAUNDERS. Yes, sir. But then I don't think it satisfies the industry's need for certainty and uniformity.
Isn't the purpose of this bill
Chairman BACHUS. I think what it provides is uniformity in those States which have very little law, and then at States going above that, at least there would be a floor of protection.
Ms. SAUNDERS. Well, if that's the intent, then that would be great, but what would the effect be in New York, New Jersey, California where there are higher
Chairman BACHUS. No, I'm saying, if you've got a stronger statute like Wisconsin, and we craft languageand I'm not saying the industry, I don't speak for the industry, but I think there's bipartisan support for a uniform national protection of a floor on these transactions and some definition and a national standard.
Certainly, I would be very hesitant to disregard State law, and I will tell you the sponsors, in talking with them, they're saying that's not their intent. I'll take them at their word.
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Sometimes the language in our bills, you know, we think that it does something, but Mr. Gilles has pointed out, and you pointed out, that the language may need to be strengthened.
Ms. SAUNDERS. That's great, Mr. Chairman. We appreciate that. What would happen, in your opinion, to those States that still called these transactions credit sales, like Wisconsin and Minnesota and New Jersey.
Chairman BACHUS. I think that's a harder question. I know we rely on the Federal Reserve and FTC on that, and I think that's going to be something that we're going to have to hash out as a subcommittee, and we look forward to your input.
Ms. HARPER. I wanted to state on behalf of the Association that our intent is that H.R. 1701 does not preempt State law. If that's a concern my colleague has, we want to set the record straight. We aren't going to preempt stronger State laws, they'll be free to add more stringent regulations if they wish to.
We do know that H.R. 1701 sets that Federal floor, sets that Federal standard and the States have the ability to add more stringent regulations, more consumer protections in the areas of collection laws, rent-to-own pricing, cash price, and other fees and charges.
Page 57 PREV PAGE TOP OF DOC What H.R. 1701 really boils down to is that this transaction that we have, the rental purchase transaction, is a lease and not a sale. And we leave it up to the individual States to put in whatever consumer protections, disclosures and advertising pricing collection practices that they need to do to protect their citizens. We're in total agreement with that.
Chairman BACHUS. Thank you. What we are talking about, I think we all agree, is a floor, not a ceiling of protection. Thank you.
The gentleman from North Carolina.
Mr. WATT. Thank you, Mr. Chairman.
First of all, Ms. Waters asked me to please extend her apologies for having to leave. This is a terrible day for, as you probably see, it's a very important subject we are dealing with here, but few Members are able to come, because people are tied up in various meetings about campaign finance reform, trying to see whether some agreement can be reached, negotiations, other things.
And I want to applaud the Chairman for calling the hearing. You always take your chances around this place. You just don't know what competing things are going to be going on.
But, Ms. Waters had an absolutely important commitment to be in a meeting and I told her I would stay here and kind of hold down the fort in her absence, because I knew she needed to go to that meeting.
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I, like the Chairman, would like to take Mr. Jones and Mr. Maloney at their word that this bill is not going forward, certainly will not be intended to preempt either substantive State law or procedural State law or even the law where there is a conflict between whether these are rental transactions or purchase transactions, all of which, if we did all of that, I think we would deal, I think, with what the State of Wisconsin is concerned about.
I take that to be the case. Am I correct in that?
Mr. GILLES. I believe so.
Mr. WATT. But beyond that, I still am notand I don't have an opinion on thisI'm trying to figure out what my opinion should be. I'm still not convinced of the substantial Federal interest in legislation in this area.
I know that this industry is, to some extent, very highly concentrated and a number of companies that control the industry, or the bulk of the sales in the industry, operate interstate. Well, I take that back. They operate individual stores in different States, and may do some interstate operation.
But, I'm trying to find whether there is some other compelling Federal interest that we have here. And I don't have a handle on that or a brief for or against that. I'm just trying to find out what the compelling Federal interest is. Is there some compelling interest?
Page 59 PREV PAGE TOP OF DOC Mr. Gilles, you deal with this every day. I take it most of what you do is inside the State of Wisconsin, so what's the interstate commerce connection that I think would be one logical reason for having Federal regulations?
Mr. GILLES. Well, it's true that there are companies that operate in many States. The industry is very, very localized, and it's like any other industry, particularly those that are being considered for consumer protection purposes, as well as for credit purposes.
That has been a matter that's been traditionally subject to State regulation, and I don't see any overriding Federal concern beyond the commercial interests of these companies that would require this industry to be singled out specially for separate regulation, let's say, different than people who sell cars, different than people that sell stereos.
I mean, there's no reason to single out this particular industry that is providing consumer goods.
Mr. WATT. That's a double-edged sword there, I would think, if that is the case. Suppose we define this as a sales transaction or a credit transaction. What would be the compelling reason to have them subject to the fair credit reporting laws or the disclosure laws?
Mr. GILLES. I think if you view this as a credit sale, as we do in Wisconsin, then it is important to provide people information so that they can really compare these transactions, and it's not being done throughout this country, other than in a couple of States. I believe that's a compelling interest in providing people with useful information.
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Mr. WATT. Let me ask the question to Mr. Byrd, because he's my South Carolina neighbor right across the line there from North Carolina.
Do you have customers outside South Carolina typically regularly?
Mr. BYRD. All of my customers are within South Carolina.
Mr. WATT. Do you realize that if this statute
Well, first of all, does South Carolina have a statute that governs rent-to-own at all?
Mr. BYRD. Yes, they do.
Mr. WATT. Do you realize that to the extent this is a stronger statute than the South Carolina statute, or even possibly even if it's not stronger, and litigation is brought under this Federal statute, you're probably going to have to defend all your lawsuits in Columbia, rather than Florence, in the Federal court, rather than the State court.
Mr. BYRD. That much is so, but what we are concerned about is South Carolina is pretty well close to this H.R. 1701.
Mr. WATT. I'm talking about convenience now. I'm not talking about substantive law. I'm just talking about in terms of your own personal convenience. I assume you periodically every once in a while, probably not often, get into some legal dispute. If this statute is in effect, a Federal statute, I presume that litigation is going to be brought in the Federal court, rather than in the State court of South Carolina, and the question I'm asking is, wouldn't that be less convenient for you, as a local business owner, dealing with local business customers, than having a State statue in place where the disputes would be litigated under State law in the State court?
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Mr. BYRD. That wouldn't bother me any, but I can't foresee, in a sense, that happening because of the fact, as I mentioned with a sales contract, and I do both, I've been in business for 42 years. With any of my sales contracts that I had any litigation on or whatever, it was settled right there in Florence, and they do have a Federal court right there in Florence. I don't have to go to the State capital.
Mr. WATT. You do have Federal court in Florence? OK, I didn't realize that. I'm sorry. I just assumed that all your litigation in Federal court took place in Columbia or some place away from Florence. I didn't mean to misrepresent it. I just didn't understand that.
I'm still wrestling with this, Mr. Chairman, as you can see. I appreciate the Chairman having the hearing. I too have to leave.
Chairman BACHUS. I think this is a good place to wrestle with these issues.
Mr. JONES. Thank you, Mr. Chairman.
Mr. Gilles, let me ask you, how many rent-to-own businesses do you have in Wisconsin?
Page 62 PREV PAGE TOP OF DOC Mr. GILLES. I'm not certain.
Mr. JONES. How many have you taken to court?
Mr. GILLES. The State of Wisconsin has had enforcement actions against four companies.
Mr. JONES. Are they still in business?
Mr. GILLES. Two of them are.
Mr. JONES. If you would, would you submit to the subcommittee how many rent-to-own businesses are in the State of Wisconsin?
Mr. GILLES. I can certainly try and get that information. I'll try and get it, they aren't required to file with the State, but I think I can get it from the trade association in Wisconsin.
Mr. JONES. Thank you.
Mr. Byrd, let me say to you, as a person who strongly supports the individual that can develop a business, you are to be commended, you and your family, for being in the business 42 years. And I would imagine in this 42 years, I can't imagine you remaining in business, quite frankly, for 42 years if you had not treated your customers fairly.
Page 63 PREV PAGE TOP OF DOC Mr. BYRD. That's right.
Mr. JONES. Maybe it's because you're from South Carolina, I don't know, but you just seem to be that type of person that you're going to treat your fellow man as fairly as you can and still try to make a profit and stay in business.
Mr. BYRD. That is right, Representative Jones. And that's why I am in business, I believe, by having satisfied customers. We treat the rent-to-own customers no different than I would treat a sales customer, because I predict right now about 85 percent of my customers in rent-to-own are repeat customers and sales. That's what keeps me in business, because advertising has got so high, I can hardly afford to advertise, so I have to keep the customers happy and keep them coming back.
Mr. JONES. Thank you.
Mr. Chairman, what Mr. Maloney and I were trying to do in working on this bill, this is the year 2001. I think the rent-to-own business has made so many advances over the past few years, to help improve their industry, and you can only improve your industry if you improve your customer base. You're not going to be in business if you don't have customers. And to Ms. Saunders, whom I know from my days in Raleigh, North Carolina, when I was in the General Assembly, we put this bill in a year ago, and one of the biggest pleasant surprises I had was then-Congressman, and now United States Senator Charles Schumer, came in on this bill.
I don't really believe there is a bigger advocate for the consumer than Charles Schumer. You might disagree or agree, but I think you see bipartisan support for this bill, and none of us would want to preempt States' rights, I am a States' rights Congressman.
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Many times I voted against our leadership here in Washington. I'm a Republican simply because I don't want to take from the States. I think truthfully, wherever that might be a problem, we're going to work with the Democratic side and the Chairman, to make sure that we clarify anything that needs to be clarified.
I would like to say to Ms. Harper that when I hear some of the comments, is it not true that the industry was willing to work and improve consumer protection and expand disclosures so that maybe you could finally bring the question to a finality of whether the definition of lease versus sale?
Ms. HARPER. Absolutely. We have wanted to work with consumer advocates and everyone else to address the concerns, and we did take the FTC's recommendation that we add more information about the full disclosures, all the fees, all the other charges. That's what H.R. 1701 provides.
Mr. JONES. I think, Mr. Chairman, again, I want to thank each and every one that is on the panel and thank you for this hearing, because I really believe from this hearing that there is a need for this legislation.
Now, again, H.R. 1701 is the start, but I believe there is a problem that needs to be fixed and I want to thank you for holding this hearing, and we look forward to working with the Democrats on this subcommittee, we look forward to working with you in moving this bill forward.
Page 65 PREV PAGE TOP OF DOC So, I want each and every one on the panel who has a concern to know that Mr. Maloney and I are very sincere when we say that we are looking to work with you to make this bill so that each side on this issue comes out a winner.
With that, I yield back my time.
Chairman BACHUS. Thank you.
I'm going to start a second round of questioning, and I'll probably just ask one question.
Mr. Gilles, we've got the Truth-In-Lending Act, (TILA), and the Consumer Leasing Act. The rent-to-own industry predates that, but they're not covered in it. Do you think that was intentional?
Mr. GILLES. My understanding, Mr. Chairman, is that there were decisions applying Truth-In-Lending to the rent-to-own industry in the 1980s, and at some point in time, the rent-to-own industry was effective in securing an administrative determination that they were outside the scope of Truth-In-Lending.
So my understanding is that at the time Truth-In-Lending was enacted, it was intended to cover all sorts of transactions that had time-price differences, where people wound up owning merchandise, and it was intended to deal with a wide disparity of credit terms that were in the marketplace. So people, if they wanted to pay for something on time, would be able to compare the various offers out there.
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But at the present time, it's my understanding of the current status of Federal law, and I believe that dates from a point in time in the 1980s, that there was a definitive ruling by Federal authorities that Truth-In-Lending did not apply to rental/purchase contracts.
Chairman BACHUS. That's my understanding.
Let me close by saying this. We have an industry that, at least according to the FTC, 75 percent of the people are satisfied with. And those that aren't, aren't satisfied with the price. You know, that to me would be pretty close to what, if you walk in the store and bought an item outright.
At least, that is according to what the FTC says. Now maybe what the FTC is saying is flawed, but that's what we're hearing. We are also hearing, and I am aware of this, that people make rent-to-own decisions and are repeat customers. They continue to come back.
Now, I won't have to tell you this. This is America and we give people choices. They make judgments and sometimes we question their judgments.
The Dave Matthews Band came to Birmingham a few weeks ago and about 300 students at the University of Alabama went to pawnshops and left items, and a lot of them didn't retrieve those items. Some of them did, and those that did paid a tremendous interest rate.
Yes, I wouldn't have done that, I'd have passed up on Dave Matthews if it took pawning something. But the talk, according to my son, is at the university that this is a great way in the future that more students are going to take advantage of pawnshops.
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Chairman BACHUS. Most of them hock stuff, you know. That wouldn't have been my judgment, and there are three million Americans, poor Americans, that are making this judgment. I don't think it's the role of Congress to do what my sons also say. When I find they do something I disagree with, they say ''Dad, don't give me another self-improvement book.''
You know, I don't think it's our role to take away somebody's option or choice, even though we may disagree with it. I do think it's our role, and I think there is a Federal role in establishing a floor protection for those people.
And I will tell you at the same time, I feel very strongly that our role should not be preempting the States which want to offer stronger protections. But I don't think it's our role to say people shouldn't go to pawnshops; they shouldn't go to rent-to-own; they shouldn't make these transactions. That's part of freedom. That's part of what we enjoy in a democracy, the right to give people these choices and not condescend in our judgment.
So, I very definitely believe that we have a Federal role, and I believe that the bipartisan support on this bill reflects that this body believes that the right kind of legislation needs to address this.
And I think every industry, as long as it is a legitimate industryand I don't question the legitimacy or legality of this industrydeserves predictability or some uniformity. Every other industry has it. I don't think this industry ought to be any exception. I want to work with all groups to see that consumers are treated fairly under any legislation we pass.
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Again, I'm going to say that we don't preempt the citizens of Wisconsin and what they have chosen to do.
Thank you. We appreciate your testimony. The hearing is adjourned.
[Whereupon, at 1:00 p.m., the hearing was adjourned.]