Thorn reviews claim of malpractice at US arm: Former American senator to look at Rent-A-Center chain
Tuesday 09 November 1993
Warren Rudman, a Republican senator from New Hampshire who decided not to run for re-election last year, will investigate whether the group's chain of 500 Rent-A- Centers - appliance-leasing outlets that turn over the goods to customers once they have completed a schedule of weekly payments - misleads and maltreats low-income clients.
'Thorn EMI is confident that Rent-A-Center's procedures, which are the subject of continuous improvement, are second to none in its industry and strongly guard against the types of abuse alleged,' Sir Colin Southgate, the chairman of Thorn, said.
Rent-A-Center, Thorn's most profitable division, has been under scrutiny since late September, when an investigative report in the Wall Street Journal charged that it deceived customers about the real costs of its scheme.
The report found that the rent-to- own formula resulted in some customers paying effective annual interest rates in excess of 200 per cent to acquire items such as cassette players and television sets. It also suggested that employees routinely put pressure on customers to take on more payments than they could afford, leading to high rates of default and repossession.
The newspaper quoted former staff members as saying that the division's agents broke into customers' homes and employed members of motorcycle gangs to help recover goods when payments fell behind schedule.
In another instance, a late payer was allegedly forced to do involuntary labour for the chain.
Walter Gates, Rent-A-Center's chief executive, has denied the charges, calling them profoundly wrong and grossly unfair. He said that the company, which has about 25 per cent of a market worth dollars 2.8bn a year, aims to bring new professionalism to an industry with a bad reputation. But the reports have prompted members of the US Congress to suggest new laws cracking down on rent-to-own outlets, reclassifying lease-purchases as credit sales.
Many US states limit annual interest rates to 21 per cent, and would regard Rent-A-Center's effective rates as usurious.
Rent-A-Center argues that its leases are not sales because they allow clients to cancel at any time. Indeed, three out of every four customers eventually fail to meet payments.
Sir Colin said yesterday that Thorn, which bought the chain in 1987 for some dollars 600m, was confident Rent-A-Center's management and staff operated with complete integrity and professionalism. He added that the appointment of the former senator to conduct the inquiry underscored this confidence.
Mr Rudman will report by the end of the year.
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