MAY 2006

Rent-A-Center Enters Payday Loan Market

Hoping to capitalize on its relationships with lower-income borrowers, Rent-A-Center Inc. has announced that it will be expanding into other financial services, beginning with payday loan products. Rent-A-Center has 2,760 stores nationwide and is the largest company in the business of renting big-ticket items such as appliances and home electronics. It currently has 1,800 stores in the 35 states that permit payday lending. The company believes that it will take about 1,400 stores offering the payday product for the business to be profitable.

Mitch Fadel, the company's president and COO, told the American Banker that Rent-A-Center would start by offering loans either through in-store kiosks (a service counter in the back of an existing store next to the current customer transaction center) or "box-in-a-box" locations in which the company carves out a separate store with a separate entrance. Analysts say the company's skills developed on the rental side of its business — verifying customer identities and collecting when they fall behind on weekly or monthly payments — position it well to enter the payday loan market. In addition, by launching the new payday loan business inside existing stores, Rent-A-Center can be more profitable than stand-alone payday lenders.

Robert Davis, Rent-A-Center's CFO, said that the company is hoping that the payday lending will generate more foot traffic that will benefit the rental side of the business. The company clearly has other cross-sell opportunities in mind. In a filing with the Securities and Exchange Commission in March 2006, the company said "Traditional financial services providers ineffectively market to our customer base, and . . . an opportunity exists for us." Rent-A-Center's financial offerings will include short-term secured and unsecured loans, debit cards, and bill payment, check cashing and money-transfer services under the trade name of "The Cash AdvantEdge."