District Court Dismisses CFPB Attempt to Label Lease-to-Own Program “Credit”

The U.S. District Court for the District of Utah recently dismissed certain claims alleged by the CFPB against a lease-to-own consumer finance company on the basis that the company’s lease-to-own arrangements are not credit arrangements under the CFPA. 

Under the lease-to-own program, the company would purchase a product sought by a consumer, allow the consumer to possess the product as the company’s agent, and execute a lease-to-own agreement with the consumer for the product.  The consumer would then pay for the product by making twelve monthly automatic payments or by exercising a 100-day early buyout option.  The company would retain the right to repossess the product if the consumer were delinquent on scheduled payments.

The CFPB alleged that the company misled consumers about the terms of the lease-to-own program in violation of the CFPA.  The CFPB argued that the lease-to-own agreement qualified as a de facto credit arrangement because, among other reasons, the lease automatically renewed over a twelve-month period, the agreement could only be terminated if the consumer was non-delinquent, and the company never exercised its right to repossess the property.  The company moved to dismiss the CFPB’s claims on the basis that its lease-to-own program did not create a credit arrangement with consumers because it did not provide consumers with the right to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment for such purchase.

In finding that the lease-to-own arrangement does not equate to a credit arrangement, the district court looked to other federal precedent connecting the meaning of “credit.” The court noted that any deferred payments were not by the exercise of any right of the consumer, but because the company declined to exercise its contractual right to repossess the property. The court found that the company’s practice of declining to repossess the property transformed the lease agreements into the functional equivalent of purchase finance arrangement, which is not a credit agreement subject to the CFPA.

The CFPB further argued that the arrangements should be subject to the CFPA because consumers might subjectively have believed that they were entering into credit arrangements. The court rejected this argument, finding that the CFPA “[u]nder no reasonable interpretation” defers to consumers’ subjective understanding to determine the meaning of key terms such as “credit.”