On July 19, the CPFB filed a complaint against a lease-to-own finance company, alleging that the company has offered and provided millions of “lease-purchase” and “rental-purchase” financing agreements in ways that have harmed consumers, including through misleading advertisements, insufficient disclosures, and interfering with consumers’ ability to understand the terms and conditions of its financing agreements. The CFPB additionally alleges that the company harmed consumers in servicing its lease-to-own financing products by misrepresenting payment obligations and making false threats in collections. Specifically, the CFPB alleges that the company engaged in the following illegal activity:

• Using deceptive advertising practices to lock consumers into expensive agreements. The company aggressively marketed its financing with advertisements that misled consumers as to the nature of the financing arrangement and failed to disclose the true costs customers would incur. Consumers were automatically entered into 12 months of payments, which typically involved total payments that amounted to more than double the cash price of the financed merchandise or service.
• Obscuring the terms and conditions of its financing agreement to confuse consumers about their payment obligations. The company typically required merchants to provide the details of its financing agreements to consumers, but for years did not provide written training materials on this subject to its merchant partners. The company also failed to provide consumers with required disclosures about the cost of credit, such as finance charges and annual percentage rates.
• Misrepresenting consumers’ rights in the finance agreements. The company made false and misleading statements to consumers about their rights under the agreement, which led consumers to believe they could not terminate their agreement or surrender merchandise back to the lender. Out of the nearly 1.7 million “rental-purchase” agreements that the company entered into with consumers between January 2017 and January 2020, the company permitted consumers to “surrender” their financed merchandise in only 165 cases total.
• Making false threats and deceptive statements to struggling borrowers: The company also employed illegal debt collection practices by threatening actions and misrepresenting consumers’ payment obligations under their agreement. In some cases, the company also made these threats to consumers who had already made all their payments, who were current on their payments, or who had not even received their purchase yet.

The CFPB alleges that such conduct violated the CFPA’s prohibition of deceptive and abusive acts and practices, the Truth in Lending Act and its implementing Regulation Z, the Electronic Fund Transfer Act and its implementing Regulation E, and the Fair Credit Reporting Act and its implementing Regulation V. The CFPB seeks, among other things, injunctions to prevent future violations, rescission or reformation of Snap’s financing agreements, redress to consumers, and civil money penalties.

Putting it into Practice: Lease-to-own/rent-to-own transactions (“LTO Transactions”) are largely governed by state law and, if structured correctly, are exempt from a number of federal laws that apply to other forms of consumer financing, including the CFPB’s UDAAP authority. The allegations in this case signal that the CFPB is focused on companies that stray from the tight contours that permit LTO Transactions to avoid application of federal laws such as TILA and the Bureau’s UDAAP authority.

This lawsuit comes on the heels of other recent enforcement actions that the CFPB has taken against financial services companies to crack down on allegedly deceptive conduct with respect to consumers. These actions also reinforce the CFPB’s stated commitment to penalizing companies for charging junk fees and other fees that allegedly cause harm to consumers. Therefore, financial services companies should review the complaint and other similar actions by the CFPB and ensure that their practices and product offerings comply with federal consumer protections laws.