On July 22, a Texas-based lease-to-own company filed suit against the CFPB in Federal District Court for the Eastern District of Texas alleging that its “illegal and unconstitutional investigation” into the company’s business falls outside the Bureau’s authority.
The complaint details how the plaintiff provides consumers with short-term renewable leases known as Rental Purchase Agreements (“RPA”). These RPAs allow consumers to take immediate possession of goods, such as furniture and appliances, upon purchase 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 payment and terminate the RPA at any time without penalty, with the goods subsequently returning to the company. However, if the consumer makes enough payments, they can take ownership of the items.
The company claims the CFPB began investigating it four years ago on the grounds that it violated various federal statutes including the Truth in Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), and the Consumer Financial Protection Act—applicable to entities that extend credit. However, the company asserts that its RPAs and lease-to-own agreements do not constitute credit extensions. Consequently, it argues that the Bureau lacks jurisdiction and authority over its business model.
In its lawsuit, the company presents two primary arguments. First, it contends that the Bureau’s investigation oversteps its statutory authority by attempting to regulate “state-law governed lease-to-own transactions” that do not constitute credit and therefore, do not fall within the scope of the EFTA, TILA, and the Consumer Financial Protection Act. Moreover, doing so would not only be a major policy decision requiring an act of Congress (i.e., the major questions doctrine), but also that the courts, and not the CFPB, should decide whether these transactions are credit (see our discussion of Loper here).
Second, the company claims that the Bureau’s funding mechanism violates the Constitution. This assertion is grounded in the Supreme Court’s recent ruling in CFPB v. Cmty. Fin. Servs. Ass’n of Am., Ltd., 601 U.S. 416 (2024), where it was determined that the Bureau’s funding mechanism is constitutional only if it “draws funds from the combined earnings of the Federal Reserve System.” Id. at 435. The complaint alleges, however, that the Federal Reserve has failed to generate a profit for the past two years. The complaint asks for, among other things, injunctive relief against the CFPB barring its continued investigation into the company and an award of attorneys’ fees.
Putting it into Practice: Looks like the CFPB is not out of the woods when it comes to constitutional challenges. Plaintiffs here have raised several challenges against the Bureau’s authority, including many based on recent Supreme Court decisions attacking federal agency actions (see our discussion here). We will, of course, continue to monitor the case as it develops.