On May 27, the CFPB filed a notice of dismissal with prejudice in its lawsuit against a lease-to-own fintech provider. The lawsuit, filed in July 2023, alleged that the company’s rental-purchase agreements violated several federal consumer financial laws, including the Truth in Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), the Fair Credit Reporting Act (FCRA), and the Consumer Financial Protection Act (CFPA).
In its original complaint, the CFPB alleged that the company targeted consumers with limited access to traditional credit—internally referred to as “ALICE” consumers (Asset-Limited, Income-Constrained, Employed)—with financing agreements that often required consumers to pay more than twice the cash price of the financed merchandise over a 12-month period. The Bureau claimed the agreements were misleadingly presented as short-term lease-purchase options, when they were in fact credit arrangements subject to federal disclosure and servicing requirements.
Specifically, the complaint’s allegations against the fintech provider included:
- Failure to provide required TILA disclosures. The Bureau asserted that the company’s agreements qualified as credit sales under TILA and Regulation Z, triggering disclosure obligations the company allegedly failed to meet.
- Conditioning credit on preauthorized electronic fund transfers. The CFPB alleged the company violated EFTA and Regulation E by requiring consumers to authorize recurring ACH debits as a condition of receiving financing.
- Deceptive and abusive marketing and contracting practices. According to the complaint, the company misled consumers about the cost and structure of the agreements, impeded consumers from terminating repayment obligations, and failed to ensure consumers had an opportunity to review agreement terms before signing.
- Unfair collection and credit reporting practices. The Bureau alleged that the company threatened actions it did not take, sent payment demands to consumers who had no outstanding obligations, and lacked reasonable written policies for furnishing consumer data, in violation of FCRA and Regulation V.
Putting It Into Practice: The dismissal of this case is another clear example of the CFPB stepping back from enforcement actions initiated from the previous administration (previously discussed here, here, and here). Although the Bureau has scaled back its use of certain enforcement powers, state regulators and other federal agencies have not slowed their efforts to enforce UDAAP violations (previously discussed here and here). Financial institutions should ensure their compliance programs are up to date to avoid scrutiny from state and federal regulators.