Lease-to-Own Business Files Complaint Against CFPB’s Investigation

On July 22, a lease-to-own company (plaintiff) filed a complaint against the CFPB in the U.S. District Court for the Eastern District of Texas to seek declaratory judgment and injunctive relief to halt the CFPB’s ongoing investigation and pending litigation related to the company’s business. 

The plaintiff has offered short-term renewable lease solutions to consumers via Rental Purchase Agreements (RPA) for over a decade that allow consumers to take possession of household merchandise and other goods, such as furniture, appliances, and computers, that they would otherwise be unlikely to afford. Lease-to-own transactions have been regulated at the state level for decades and were recognized as distinct from credit transactions, given that the RPAs do not involve a loan of money or a requirement to repay. The RPAs clearly stated that the underlying transaction was “not a loan or a credit transaction.”

The CFPB, after almost four years of investigation incurring “substantial legal fees,” appeared to have taken the position that these transactions were credit transactions subject to consumer financial regulatory laws, including the CFPA, TILA, and the EFTA, to regulate lease-to-own transactions under federal law. The plaintiffs have countered that this equated to “regulatory overreach” for three reasons: 

1. the plain language of the CFPA, TILA, and the EFTA were clear in that they do not extend to lease-to-own transactions; 

2. regulation of the lend-to-own industry rests with the states and the federal government has declined to pass its own form of legislation addressing regulation of the same; and 

3. the courts rather than the CFPB as a federal agency must decide whether the statutes permit the CFPB to assert its regulatory power following the Loper Bright ruling. 

The plaintiff also asserted that the CFPB’s “aggressive and illegitimate” investigation of the plaintiff’s lend-to-lease business was unconstitutional in that it (a) violated due process rights for failure to provide fair notice of federal regulation and (b) stemmed from the funding of the Bureau that was unconstitutional.

The complaint alleged that the CFPB proposed a settlement agreement that the company has deemed “impossible” to accept that subsequent efforts by the company to reach agreeable terms and schedule a settlement meeting have been rejected by the CFPB, and that the Bureau was preparing to file a lawsuit against the company. The plaintiffs sought declaratory relief in that the CFPB investigation has exceeded its statutory authority and that the CFPB’s investigation was unconstitutional.