The Consumer Financial Protection Bureau (CFPB) on Friday announced that it filed a lawsuit against a company and its former CEO, accusing them of engaging in illegal lending activities. The CFPB alleges that the company used deceptive tactics, including dark patterns, to trap consumers in high-cost credit agreements disguised as leases, thereby evading consumer financial protection laws. The suit comes just days after the company had preemptively filed a suit of its own against the CFPB to block the pending enforcement action.
The Background: The defendant, based in Utah and operating under various brand names, offers a financing product purported to be a lease or “virtual rent-to-own” option for household goods. Founded in 2013, the company targeted consumers with poor or limited credit, effectively locking them into financial obligations that often resulted in paying more than 200% of the retail price for goods. The company nominally purchased the goods selected by consumers from independent merchant partners and then leased them back to the consumers, typically for a 12-month term.
The CFPB’s lawsuit claims that the company misled consumers by marketing its product as a credit option, while internally and in financial statements, it referred to these agreements as leases. This dual characterization was an attempt to avoid consumer protection laws that apply specifically to credit or lease agreements. The company also utilized deceptive marketing, including promoting a 90-day “early purchase option” as an interest-free loan, which was not the case.
The Claims: The CFPB accuses the company of violating several consumer protection laws, including the Consumer Financial Protection Act (CFPA), Truth in Lending Act (TILA), Fair Credit Reporting Act (FCRA), and Electronic Fund Transfer Act (EFTA). The specific allegations include:
- False Marketing: The company allegedly misled consumers by presenting the financing agreements as credit and later describing them as leases. It also misrepresented the 90-day “early purchase option” as an interest-free offer.
- Deceptive Digital Dark Patterns: The company’s application process obscured key terms and conditions, making it difficult for consumers to understand the nature of their agreements.
- Trapping Borrowers: The company created obstacles for consumers trying to return goods, effectively trapping them in costly contracts.
- Credit Reporting Failures: The company reportedly furnished inaccurate information to consumer reporting agencies and did not properly notify consumers of negative information.
