Fintech
Texas-Based Lease-Owned Company Sues CFPB
On July 22, a Texas-based lease-purchase company filed suit against the CFPB in the Federal District Court for the Eastern District of Texas, arguing that its “illegal and unconstitutional investigation” into the company’s activities falls outside the Bureau’s authority.
The complaint details how the plaintiff provides consumers with short-term, renewable leases known as Rental Purchase Agreements (“RPAs”). These RPAs allow consumers to immediately take possession of goods, such as furniture and appliances, when they purchase them from third-party retailers. The company retains ownership of the goods, while consumers pay a rental fee to enjoy their use. According to the complaint, the consumer can stop paying and terminate the RPA at any time without penalty, with the goods subsequently reverting to the company. However, if the consumer makes sufficient payments, they can take possession of the items.
The company claims that the CFPB began investigating it four years ago, alleging that it violated several federal statutes, including the Truth in Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), and the Consumer Financial Protection Act, that apply to entities that extend credit. However, the company claims that its RPAs and lease-to-own agreements do not constitute extensions of credit. As a result, it claims that the Bureau lacks jurisdiction and authority over its business model.
In its lawsuit, the company makes two main arguments. First, it argues that the Office’s investigation exceeds its statutory authority by attempting to regulate “state-lease-to-own transactions” that do not constitute credit and therefore fall outside the scope of EFTA, TILA, and the Consumer Financial Protection Act. Furthermore, doing so would not only be a major policy decision that would require an act of Congress (i.e., the doctrine of the main questions), but also that courts, not the CFPB, should decide whether these transactions are valid (see our discussion on Loper Here).
Second, the company claims that the Bureau’s funding mechanism violates the Constitution. This claim is based on the Supreme Court’s recent decision in CFPB v. Cmty. Fin. Servs. Ass’n of Am., Ltd., 601 US 416 (2024), which held that the Bureau’s funding mechanism is constitutional only if it “draws funds from the combined profits of the Federal Reserve System.” Id. at 435. The complaint alleges, however, that the Federal Reserve has failed to generate profits for the past two years. The complaint seeks, among other things, injunctive relief against the CFPB preventing its continued investigation of the company and an award of attorneys’ fees.
Putting it into practice: It appears the CFPB is not out of the woods when it comes to constitutional challenges. Plaintiffs here have raised several challenges to the Bureau’s authority, including several based on recent Supreme Court decisions attacking the actions of federal agencies (see our discussion Here). We will of course continue to monitor the evolution of the case.