FTC Alleges Agreements by Aaron’s Inc., Buddy’s Newco, LLC, and Rent-A-Center, Inc. Reduced Competition, Lowered Quality and Selection of Products
Kehoe Law Firm, P.C. is making consumers aware that on February 21, 2020, the Federal Trade Commission announced that rent-to-own operators Aaron’s Inc., Buddy’s Newco, LLC, and Rent-A-Center, Inc. have agreed to settle FTC charges that they negotiated and executed reciprocal purchase agreements in violation of federal antitrust law.
The complaints, according to the FTC, alleged that from June 2015 to May 2018, Aaron’s, Buddy’s, and Rent-A-Center each entered into anticompetitive, reciprocal agreements with each other and other competitors. These agreements swapped customer contracts from rent-to-own (“RTO”) stores in various local markets.
An outcome, according to the FTC, was that one party to the agreement closed down stores and exited a local market where the other party continued to maintain a presence. The FTC stated that the reciprocal agreements likely led to store closures that may not have occurred otherwise, resulting in reduced competition for quality and service in the remaining stores, according to the complaints. In addition, many consumers travel to their designated store to make their regular payments in person. If their store closes, these customers must travel to the next-closest location, which may significantly increase their travel time and costs.
These agreements also explicitly required the selling party not to compete within a specified territory, typically for a period of three years.
The FTC stated that the consent agreements prohibit the three RTO companies and their franchisees from entering into any reciprocal purchase agreement or inviting others to do so, and from enforcing the non-compete clauses still in effect from the past reciprocal purchase agreements. The three RTO companies must also implement antitrust compliance programs, notify the FTC in the event of certain changes in corporate governance, and grant the FTC access to company facilities as needed to ensure compliance with the order. Finally, due to prior board-level relationships between Aaron’s and Buddy’s, these firms are barred from having any of their representatives serve as a board member or officer of a competitor, and from allowing any competitor’s representative to serve on their boards.
“Analysis of Agreement Containing Consent Order to Aid Public Comment” (In the Matter of Rent-to-Own Store Swaps File No. 191-0074)
According to the FTC’s “Analysis of Agreement Containing Consent Order to Aid Public Comment“:
The Federal Trade Commission . . . has accepted, subject to final approval, an Agreement Containing Consent Order with Aaron’s, Inc. . . . an Agreement Containing Consent Order with Buddy’s Newco LLC . . ., and an Agreement Containing Consent Order with Rent-A-Center, Inc. . . . . The proposed Consent Agreements are intended to remedy anticompetitive effects resulting from reciprocal purchase agreements made between Aaron’s, Buddy’s, and RAC, and certain of their competitors in the brick-and-mortar rent-to-own . . . industry.
Pursuant to the reciprocal purchase agreements, Aaron’s, Buddy’s, and [Rent-A-Center] sold consumer rental contracts to nearby competitors contingent on Aaron’s, Buddy’s, or [Rent-A-Center] acquiring that competitor’s consumer rental contracts in another geographic area. These reciprocal purchase agreements, called swap agreements (“Swap Agreements”) by the RTO industry, also included non-competition agreements whereby Aaron’s, Buddy’s, or [Rent-A-Center] and the nearby competitors each agreed to close stores associated with the consumer rental contacts being sold and to not open new stores within a specified distance for a limited amount of time. Not all swap agreements violate the antitrust laws. Swap agreements between companies in the same industry that generate significant procompetitive benefits for consumers, such as more efficient distribution or creation of a new product, may not violate the law. The Swap Agreements and ancillary non-competition agreements at issue in the present case, however, likely reduced competition between Aaron’s, Buddy’s, [Rent-A-Center], and their competitors in the RTO industry in several local markets in the United States, reducing consumer choice and depriving consumers of the benefits of price and quality competition.
“Effects of the Challenged Conduct”
The FTC’s “Analysis of Agreement Containing Consent Order to Aid Public Comment” stated that
[t]he evidence indicates that at least some of the Swap Agreements entered into by Buddy’s, Aaron’s, and RAC, had the purpose and effect of facilitating each party’s ability to induce its competitor to exit a market. Such agreements are a form of restraint that reduces competition and creates a clear threat of consumer harm. Consumers in the affected geographic areas lost any benefits of competition resulting from the closing of RTO stores and had fewer options for rental merchandise. Moreover, the evidence indicates that Aaron’s, Buddy’s, and RAC closed stores that might not have been closed but for the Swap Agreements. As a result, the FTC has issued its [c]omplaints and entered into the Consent Agreements, which remedy the harm to competition.
“The Agreement Containing Consent Order”
The FTC’s “Analysis of Agreement Containing Consent Order to Aid Public Comment” also stated that
[t]he proposed Orders fully address Aaron’s, Buddy’s, and RAC’s past actions and contain important fencing in and notification provisions. The Orders prohibit Aaron’s, Buddy’s, and RAC from entering into any future Swap Agreements and from enforcing any non-compete clauses that are still in effect from past Swap Agreements. The Orders also prohibit any Aaron’s or Buddy’s representatives from serving on the Board of Directors of any of their competitors, or any competitor’s representatives from serving on the Aaron’s or Buddy’s Board. [Rent-A-Center’s] Order does not contain this prohibition because, unlike Buddy’s and Aaron’s, there is no evidence that a [Rent-A-Center] representative has previously served on a competitors’ Board of Directors. The Orders require Aaron’s and Buddy’s to establish antitrust compliance programs, while [Rent-A-Center] must establish a compliance program related to its Order. Finally, all the Orders impose reporting requirements, and the Orders will terminate in 20 years.