The latest battle over what counts as credit is playing out in two cases against
Acima’s website states that its purchase options are “not a loan or a credit card,” but the Consumer Financial Protection Bureau and New York’s attorney general are arguing the opposite in separate court cases.
The lawsuits are another sign of scrutiny among federal and some state officials over lease-to-own contracts, though their efforts haven’t come without setbacks. The CFPB recently lost a case against Snap Finance, in which the agency argued the contracts were effectively loans.
The two Acima lawsuits aim to persuade judges to expand the definition of a credit product so that lease-to-own contracts would be subject to the same consumer protections as loans, said Vincent Caintic, who covers consumer finance companies at BTIG Research & Strategy. Those protections include caps on interest rates in many states.
If judges do agree that Acima’s products are loans, it could put them under the authority of the CFPB, which oversees credit transactions and disclosures.
State attorneys general have clear purview over Acima’s products, but calling them loans rather than lease-to-own transactions could trigger requirements that states have for consumer lenders.
New York state’s attorney general, Letitia James, stated in a lawsuit filed Wednesday that Acima “behaves like a lender” and thus should be subject to the state’s cap on interest rates for consumer loans. Acima’s transactions are “not true rent-to-own” transactions, James said, since returning purchased items is difficult if not impossible.
Since the contracts “are in fact loans under New York law,” they should be subject to the 16% usury cap that the state has on loans, the lawsuit said. Instead, the company routinely charges annual interest rates above 100%, the lawsuit said.
“Acima took advantage of thousands of consumers who were simply trying to shop for basic goods, like mattresses, eyeglasses, and appliances,” James said in a news release. “Thousands of New Yorkers were overcharged by Acima and fooled by Acima’s deceptive lending practices.”
Acima, which is owned by the publicly traded Upbound Group, is disputing James’ lawsuit and said it was “suddenly and inexplicably filed” after months of cooperating with her investigation. In a news release Wednesday, the company called the suit an “attempt to recharacterize well-established lease-to-own transactions as lending transactions.”
“Lease-to-own transactions are among the most flexible and inclusive shopping options in the market, serving millions of consumers a year across the country,” the company said. “Acima looks forward to presenting its case to the court.”
James’ case is filed under the New York state court system.
Acima is fighting the CFPB in a federal court in Utah.
The company got ahead of the CFPB lawsuit, suing the agency a few days earlier for what it called an “illegal attempt to expand its authority” and usurp the state regulatory process. That case was filed in a federal court in Texas.
A federal judge in Utah recently dismissed a similar case from the CFPB against Snap Finance, writing that the lease-to-own products in question did not meet the statutory definition of credit.
The ruling was a “positive development” for Upbound as it fights a similar case with the CFPB, Hoang Nguyen, a TD Cowen analyst who covers Upbound, wrote in a note to clients.
A broader multi-state investigation into Acima is also closer to wrapping up and
That investigation, led by Nebraska’s attorney general, consists of 38 state attorneys general and kicked off in November 2021. Upbound said the group of state officials presented their findings to the company in March 2024, and the company responded soon after.
The company got a settlement proposal this year from the group of attorneys general, Upbound said in its SEC filing. But the dollar amount that the state officials appear to be seeking from Upbound is a source of dispute, with Upbound saying it would not be willing to agree to the proposed amount since it is “unsupportable.”
“We expect to continue to discuss the potential resolution of this matter and have not yet determined the monetary and other terms of our anticipated next response to the multi-state attorneys’ general group,” the company said in its quarterly filing.
The cases are likely to take months to play out.
