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The House Committee on Business and Industry met on April 4 to hear invited testimony regarding interim charges related to rent-to-own agreements/disputes, increased use of third party data gathering by Texas employers and businesses, and the impact of data breaches on Texas consumers and businesses.

 

Review all existing law concerning consumer rights and protections, including but not limited to statutes that address deceptive practices, landlord/tenant agreements, and homeowner/contractor disputes. Determine whether the provisions offer adequate guidance and protections in disaster and recovery situations- Rent-to-Own agreements/disputes

Melinda Sandlin, Self

  • Discussed personal experience with rent-to-own furniture store, ended up paying much more than the furniture was worth and was still prosecuted
  • Oliveira- did this happen in Travis County?
    • Yes
  • Oliveira- did you speak with the District Attorney?
    • Sent a letter with no reply until many months later
  • Oliveira- did you see anything in the agreement that said you could be prosecuted?
    • Not at all
  • Oliveira- what is your background?
    • Manage call centers, married with children, high school diploma
  • Oliveira- was there any discussion at the time of the contract for rental or was it always for financing furniture?
    • The discussions were always about financing
  • Oliveira- what was the interest rate?
    • It was very high, like 33%
  • Oliveira- requested any documentation regarding this matter

 

Jason Milam, McLennan County Criminal Defense Lawyers Association

  • Provided written testimony
  • Supports an amendment to Penal Code §31.04 regarding breach of rental contracts
    • Criminalizes violations of civil law
    • Subsidizes the rent-to-own industry
  • Has had clients who dealt with this issue, clients are always unaware that they could be charged with felony theft for missing payments
  • Oliveira- is it always a felony?
    • It depends on the value owed
  • This provision employs potent collections techniques
  • Discussed time and money spend by law enforcement in handling this issue
  • Potential fix to this problem
    • Makes a specific exclusion for rent-to-own cases allowing for the statute to continue to be used for other legitimate purposes
  • Collier- do you have a suggestion for the rent-to-own company to use for collections?
    • There are eviction provisions that would be the most appropriate and similar method for collection of that property
  • Oliveira- on the notice letter, the notice is presumed to be sent whether or not it is received?
    • That is correct
    • Statute provides that 5 days after the letter is sent it is presumed to be received
  • Oliveira- that is a very troubling practice
  • Collier- do the contracts you have seen say specifically that there is a presumption that you have stolen the items if a payment is missed?
    • Nothing that a layperson would understand
  • Collier- have you seen situations similar to the previous to the previous witness?
    • It is very rare to have somebody get prosecuted after paying more that the items are worth
  • Collier- who has to pay to return the items?
    • There are many different policies
  • Oliveira- are there cases where there is intent to steal as opposed to a misunderstanding of the contract?
    • There are likely situations where the intent was to steal, and it could be proved
    • Removing this provision for rent-to-own companies would actually help with that
  • Collier- if somebody returns the property, do they still go forward with prosecuting the case?
    • It is still possible to continue with the prosecution
  • Shine- have you seen situations where rented items have ended up in pawn shops?
    • Have need personally seen issues like that

 

Chris Higgs, Texas Association of Rental Agencies

  • Despite recent news articles & media, it is extremely rare to file criminal charges
  • Would be concerned with any legislation that would undermine rental purchase agreements or limit ability to recapture merchandise
  • Discussed rent-to-own benefits to consumers
  • Not being able to get merchandise back after failed agreement is very difficult and significantly impacts the viability of the business
  • If the business owner believes there is an intent to steal and the district attorney agrees with us, then members of TARA may file
  • I want to add that TARA mostly represents the brick and mortar stores
  • Oliveira- Not sure why you have preferred actions under law, are these provisions necessary? If you don’t prosecute, then it sounds like overkill
    • The concern is over provisions that would undermine the rental agreement, e.g. customer would know they could stop paying after a certain number of payments
  • Oliveira- In regard to repossessing, how often are you successful in reposing property?
    • Extremely
    • We go through a vetting process to determine if there is intent to steal; at 1% of revenue charged off
  • Oliveira- Does your company have loss insurance?
    • We do not, we understand a certain amount of loss is just part of our business
  • Romero- Does TARA provide a common contract for its members?
    • We have been talking about that as a result of these articles, I think that is something TARA really needs to consider
  • Romero- Have you reviewed the rental service contracts of your members to see how different they are?
    • The law dictates certain criteria for that
  • Romero- Do you believe, within the rental service agreements you have reviewed, that there is potential for criminal charges to be filed?
    • No, at least not in my agreements; though it is very clear that the renter does not own the merchandise
  • Romero- Are there also members of TARA that are collection agencies?
    • We’re rent-to-own organizations
  • Romero- You do your own collections?
    • Yes
  • Romero- You don’t outsource collecting to outside agencies?
    • There may be some that do that, but we don’t
  • Romero- Walk me through what the conversation sounds like when a customer is no longer making their payments
    • We’ll contact the customer and try to assist; trying to get them caught up and make a payment at some point
    • Problem occurs when the customer avoids us, at that point we send letters
  • Romero- Are these week to week payments?
    • For the most part
  • Romero- At what point do you realize it has become a problem and these folks will not pay?
    • In our world, its two weeks
  • Romero- After two weeks do you inform them of your ability to file criminal charges?
    • Not at all
  • Romero- At what point do you inform the customer?
    • 90 days
  • Romero- Is that policy?
    • Yes
  • Romero- After 90 days of no payments, that is when you inform the customer that you will call the law?
    • Yes
  • Romero- Is that a certified letter?
    • Yes
  • Romero- What happens after the 90 day period?
    • A lot of the time it gets their attention and it is resolved; if it isn’t resolved, we’ll talk to the District Attorney and file charges
  • Romero- What about when you believe someone is intentionally avoiding, I assume that doesn’t take 90 days?
    • No
  • Romero- Walk me through that situation, how do you inform them that you’re going to call the law?
    • The cases that really get our attention are the customers that make 1 or 2 payments
  • Romero- What happens after that?
    • The customer is avoiding us
  • Romero- How long do you wait in that period?
    • We still wait the 90 days
  • Romero- You’re the president of TARA, do you believe 90 days is the average?
    • Yes, in talking with board members it might even be more
  • Collier- Is it typical for the rent-to-own company to also own the financing company?
    • We don’t finance the merchandise
  • Collier- Is there interest charged on the rental?
    • No, it can be returned at any time
  • Collier- This is not a rent-to-own contract?
    • It is a rent-to-own contract
  • Collier- What I understood Ms. Sandlin to say is that the merchandise cost $3,300 but at the end cost $8,000, is that typical in your type of business?
    • If you enter our store, there is an immediate cash price & if you enter the rental agreement it will be more than the cash price
  • Collier- Why is that?
    • Because we’re servicing the merchandise for that period, there are expenses associated with that
  • Collier- Are there charges on top of that? How can it go from $3,000 to $8,000?
    • The contracts are very transparent and outline the different pathways to ownership
  • Collier- Is it typical that the merchandise becomes twice the amount of the original cost?
    • Yes
  • Collier- What is the justification for that?
    • We’re servicing the merchandise and looking at our profit
    • A lot of merchandise returned is not in good condition, so we take losses; if you rented something on a credit card, the pricing is comparable
  • Collier- Do you tell customers how you get to the new value?
    • Yes
  • Collier- What do you say?
    • I can get you a contract, there is a 180 day cash price and then there is a rental payment option
  • Collier- Before the customer leaves the store, you tell them there is this cash price and then this rental amount?
    • Yes, if our managers and employees are trained properly, that is absolutely what should be explained to them; also in the agreement
  • Collier- If a customer returns an item early, are they responsible for what is left on the contract?
    • No, we don’t recoup that cost
  • Collier- If someone says they are unable to make next week’s payment and need to return the merchandise, they turn it in, then everything is fine?
    • Yes
  • Collier- That is a good option; You said there is no interest rate with your business and that you don’t have insurance, is it possible that other members have insurance?
    • It could be, I’ve never heard that done before
  • Collier- In the city of Corsicana they don’t allow you to prosecute for this? So, you’ve never prosecuted?
    • Not in Corsicana, but I have 33 stores throughout Texas
  • Collier- You said the contract doesn’t say the consumer will be criminally charged. How will it impact your business if we were to remove this from the penal code? Would it raise prices?
    • That is a great question, I really don’t know
  • Collier- Would you be willing to consider that?
    • We will work with the legislature in any way, always
  • Collier- Thank you for clarifying a lot of things.

 

Matthew Grynwald, Rent-A-Center

  • The Rent-A-Center name is being used like facial tissue.
  • I don’t know if those claims were from actual Rent-A-Center customers; if they are, I would love to hear more about them, I have never heard those sorts of stories from our process
  • In 2017 alone, Rent-A-Center had 452,000 rental agreements, about 30,000 of those were classified as skips
  • Of those 30,000, Rent-A-Center has a process for criminal charges, & that process was satisfied roughly 200 times.
  • About Ms. Sandlin’s testimony, her case did not result in criminal charges and would not have been approved; it appears there were inappropriate threats made by a store manager, but at no time were charges filed
  • To the extent she got that impression, I would apologize to her publicly today, the store manager that did that no longer works for us
  • Oliveira- Can you tell me of any other place in the penal code with a ‘presumption of intent to steal’?
    • I cannot
  • Oliveira- I don’t claim to be a master of criminal law, but the regular concept of knowing and intentional act makes sense; these presumptions though are disturbing to me and completely contradictory to the presumption of innocence
    • The validity of that depends on what the solution is
  • Oliveira- One community near Waco had to hire a special investigator just to handle these cases
    • I don’t know the specifics of those cases
  • If a customer has difficulty and needs a bit of relief, we can help, but when a customer is gone or pawns the item they are illicitly using our inventory
  • Oliveira- In your business do you have a standard contract?
    • Yes, it varies by state
  • Oliveira- You have sister stores?
    • We have a franchise relationship with stores that we will advise on business practices
    • They are mostly on our rental agreement
  • No one is being prosecuted for failing to make rental payments and we make exhaustive efforts to contact the customer
  • If a customer has had my product for six months without paying and we contact them then they choose to return the item, there is no presumption of intent under the statute; we wouldn’t prosecute those.
  • Oliveira- I’m getting the impression that you could do without this tool, except in most extraordinary circumstances where there is intent to steal
    • That is a fair statement, but a troubling concept
    • If we presume there is some process available to get at the clear intent, then that is a fair statement; doing away with it in its entirety would be a wrong move
  • Oliveira- It seems you have uniquely preferred status under the Penal Code, some DAs would prosecute these cases
  • Oliveira- I suspect that a serious constitutional case could be made against these cases as well & I’m surprised no attorney has done so thus far
    • In some states we put a notice at the bottom of agreements that failure to pay could result in criminal charges, as required by statute in those states; We could do that in Texas.
  • Collier- In your website it says you can apply for credit
    • Not on our website
  • Collier- It says, “financing through a credit card company”
    • I would be shocked if that is on a Rent-A-Center website; we are rentacenter.com, There might be a website out there that shouldn’t be using our name
  • Collier- You might want to go look at your website
    • I will check with IT

 

Review the increased use of third party data gathering, particularly individual background information and history, by Texas employers and businesses. Examine the standards for accessing, providing, and updating accurate background information used for employment purposes.

Chris Lemens, National Association of Professional Background Screeners

  • The key thing to understand is that this issue is already heavily regulated at the federal level
  • Under the Fair Credit Reporting Act, there are several steps an employer & provider must take in connection with a background check
  • Before the employer can order the background check, they must tell the applicant they will be getting one and get authorization for that check; it must be explicitly stated that it is for employment purposes
  • The background screener must have procedures in place that ensure maximum accuracy in the report
  • Reports are required to be complete and up-to-date, including details on criminal proceedings
  • Screeners are prohibited from reporting convictions over seven years old as well as in-process proceedings
  • Mugshot sites that have a “pay to get removed” model are preying on applicants
  • Employers who go to a mugshot site do not receive the full story concerning charges filed and other court proceedings
  • People must pay $150 to have their information removed or corrected on these websites; that fee should be zero
  • Oliveira- Those sound like reasonable fixes
  • HB 91 required licensing agencies to review criminal criteria
  • Texas has a negligent hiring and negligent tenant law that protects employers and landlords from decisions they could have made on criminal history- but its limited to convictions
  • It doesn’t make sense that we protect employers from not having refused someone a job based on a conviction history, but we don’t protect them from ignoring an arrest record when the arrest record is more probative than the conviction
  • Rep Workman’s “Ban the Box” bill needs to be addressed at the state level rather than a patchwork of local laws
  • Oliveira- If someone gets an expunction, how do you continue to update your files so that your records match that?
    • We get records from DPS and the county, also work with an expungement clearing house the shares information
    • Limited to removal from the database, some internal records need to be kept to check for duplicates from the county or DPS
    • Another model is lack of a database and instead searching on resident history; if the county does its job, the record will be removed after expungement
  • Oliveira- Do you have any recommendations as to what we could do to curb mistakes?
    • Proceed cautiously; there are some business models that we recognize as problematic, the mugshot business model is distasteful
  • Workman- If a conviction is more than seven years old it won’t show on the report?
    • Things that do not amount to a conviction are prohibited; an arrest that was not completed or deferred adjudication are examples of things not reported
  • Workman- Some info is not reported, but convictions probably would be?
    • Yes
  • Workman- How do letters of non-disclosure work?
    • We treat it the same way we would an expunction

 

Eric Ellman, Consumer Data Industry Association

  • I will second what Mr. Lemens suggested and am open to further questions

 

Study the impact of data breaches or theft on Texas consumers and businesses. In particular, study the consequences of recent data breaches and subsequent mitigation efforts. Review the existing standards of risk as well as the current best practices in securing sensitive and personal information held or used by private industries. Determine if existing rules and regulations offer adequate consumer protection while allowing continued economic success for businesses in the state.

Charles Cooper, Texas Department of Banking

  • The Department is concerned about IT security
  • Cybercrime has grown at an alarming rate and poses a threat to everyone
  • Texas Bankers Electronic Crime Taskforce was created with the US Secret Service in response to cybercrime threat
  • Cybersecurity Assessment Tool (CAT) released in June 2015. Voluntary method that guides institutions in identifying cybersecurity risks & TX Department of Banking expects banks to participate in the program.
  • The Equifax breach affected 143 million US consumers, including 12.1 million Texans
  • Criminals obtained access to personal information, including credit card and driver’s license information; criminals had access to this information for more than two months before the breach was discovered
  • A multi-state examination team was created in response to this breach with a focus on reviewing Equifax’s cybersecurity programs and determining what allowed the breach to occur
  • Initially, Equifax tried to keep us from doing an investigation, but they eventually relented
  • A subsequent breach, of lesser impact, took place later
  • Explained statutory authority of the Texas Department of Banking
  • Oliveira- When you finalize your report, will you be making recommendations for going forward?
    • Statute is not specific; intend at a minimum to provide a report or summary to the company
    • Statutorily, we can provide a report to our banks
  • Oliveira- If you have concerns about what you can release to us, we should address those; I don’t want to go through another session if there are gaps in the law which cause people problems
    • I agree, one of the reasons I cannot tell you about the end of the project is there are many things we are still analyzing.
  • Oliveira- People will follow what Texas does, so I hope we get something concrete before we come back in January

 

Eric Ellman, Consumer Data Industry Association

  • The Equifax breach was catastrophic
  • We are heavily regulated by multiple federal acts and commissions
  • There are 60 or so federal and state investigations going on; there is very likely a day of reckoning on the horizon for Equifax.
  • I don’t want to minimize the substantial breach on Equifax, but at its core this attack was a criminal attack on an American company
  • There are investigations being conducted concerning whether Equifax violated any laws
  • I don’t believe passing a new law which only states, ‘don’t violate current law’, would be helpful
  • We want to work with the Committee to find reasonable solutions
  • Workman- 149 million people had information stolen; it appears to me that information targeted by the breach can never be recovered; we can work to protect those who weren’t breach, but what about those who already lost their information?
    • The public does not know who stole this data, could be a state actor or criminal with intent to profit
    • Data has not yet appeared on the ‘dark web’ where it could be sold, so this is unlike other hacks where the data goes for sale quickly
    • There will continue to be breaches, but I would like to think that because of each breach we learn a bit more and become better prepared
    • Cooper, DOB- One of the things that is important to recognize is that Equifax is a victim also; it is important for organizations fighting against cybercrime to share that information among agencies and with businesses
  • Oliveira- Do you believe mandating retailers to be under the Leach-Bliley Act would help with security?
    • Cooper, DOB- We’re only as strong as the weakest link
    • Ellman, CDIA – The Act does regulate financial institutions.

 

Lou Senko, Texas Bankers Association, Q2ebanking

  • Customer experiences and expectations are changing rapidly
  • Large amounts of data allow customers to enjoy modern services, but also put the customer at risk
  • Q2 is a large target for bad actors
  • Every year our security budget increases as bad actors become more sophisticated
  • Q2 has software that monitors your regular activity, so we can be alerted when activity appears in your account that is outside your norm
  • We are in a heavily regulated environment
  • We are audited by financial auditors and we also look to the IT sector to ensure we stay up-to-date
  • 25% of our operational bandwidth goes to ensuring we are compliant with regulations
  • Please encourage our security vendors to share information.
  • Encourage cooperation between government agencies and the private sector
  • Encourage good practices on the consumer’s side
  • Oliveira- Do you have any opinions on the Facebook incident?
    • The amount of personal data Facebook needs to provide its service should be questioned

 

Jeff Huffman, Texas Credit Union Association

  • Credit unions have experienced mainly skimmer incidents the past year, where a thief will steal the consumer’s information from a device attached to a gas pump card reader
  • Millions in fraud losses have been tallied across the state
  • There are also instances where customer data has been stolen from large corporations, like the recent Target breach
  • Once skimmers steal the data, they can obtain fraudulent cards from a merchant who will exchange the data for a prepaid debit card
  • Skimmer incidents have become the primary method of fraud in Austin
  • Rather than going abroad, thieves now go to the community where the card was issued, making it more difficult for monitors to detect irregular card activity
  • People in my district are frustrated that they do not know who is committing the breaches
  • Credit unions want to see the breached party notifying the attorney general of Texas within a week of the breach to ensure that law enforcement is getting involved, financial institution should also be notified
  • Oliveira- These gas stations have cameras on the pumps, do those help in any way?
    • Law enforcement can utilize that footage
  • I encourage the committee to get an understanding of what the “dark web” is; basically, it is eBay for everything criminal
  • Collier- What do the skimmer machines look like?
    • It is a thin device that is slid into the card slot which collects data from the card and sends it to the bad guys
    • Scurlock, Independent Bankers Association of Texas- Apparently that is one mechanism. There has also been copying of the keys that allow people to get into the gas pump. If the inspection tape is there, then it might be safe
  • Collier- Are people safer by swiping their card inside the store?
    • Scurlock, IBAT- That is what was recommended, but there is no way to ensure that has not been compromised either
  • Collier- Is there new technology that will prevent this?
    • Scurlock, IBAT- Cash
  • It has been several years since Texas updated its laws concerning this, so I am happy to hear the committee will be considering this
  • SB 1381 was outstanding, I would be interested to find out if the study finds if prepaid card merchants are asking for driver’s licenses
  • Oliveira- Some stores won’t allow you to purchase those with a credit card. That is a good practice.
    • We applaud stores that are doing that
  • Common sense standards should be pursued by those that support the system
  • Oliveira- Can retailers buy insurance that covers these losses?
    • Yes, but because the breaches have been so extensive the premium we have to pay for that is often too high for a credit union
  • Shine- I have a gas card issued by one of the major brands. That way I don’t have to use my normal card
  • Oliveira- I’d like you all to meet with the Attorney General’s office and see if we can find some common ground on this

 

Steve Scurlock, Independent Bankers Association of Texas

  • Federal regulatory burden and cybersecurity risk are the biggest issues for our banks
  • Several state proposals have been made to increase security
  • If an entity keeps sensitive customer information, they should be subject to the same federal regulations
  • Oliveira- 2020 is when merchants go to the chip?
    • Huffman, TCUA- My understanding is that is the Mastercard/Visa schedule
  • Oliveira- Please get us a list of consumer do’s and don’ts. We want to disseminate this information easily to the public