On May 13, the Massachusetts Office of the Attorney General (OAG) announced a settlement with a fintech that partners with brick-and-mortar retailers to provide point-of-sale lease-to-own (LTO) contracts for goods such as auto parts, furniture, home appliances, electronics, and jewelry that allow customers to take products home immediately and make payments on the product over the course of months or years to eventually own the item. The settlement resolves allegations that the company engaged in unfair and deceptive conduct to mislead consumers with expensive lease-to-own contracts that violated the state’s consumer protection laws. Notably, the OAG alleged that the company placed unreasonable and unfair barriers to consumers exercising the “Early Buyout Option” (EBO), a feature of its contract that the company prominently advertises, which allows consumers to obtain ownership of the merchandise after just 90 or 101 days, for a minimal fee above the cash price.

The OAG investigation found that EBO is always significantly less than the total payment amount required to obtain ownership after the EBO period expires, which can be more than triple the cash price of the merchandise. Through these practices, the OAG determined that the company created artificial barriers that made it more difficult for consumers to exercise the much less expensive EBO. The OAG also determined that the company engaged in deceptive advertising that was inconsistent with the transaction being a lease, which had the effect of leading consumers to misunderstand the nature and cost of ownership of the merchandise.

Additionally, the OAG alleged that the company limited consumers’ ability to schedule adjusted autopayments, required calls for final ownership payments, failed to clearly explain return or lease-termination rights, and made returns burdensome by requiring consumers to locate donation recipients and by routing return requests through multiple alternative offers first. The OAG further alleged that the company violated the state’s debt collection regulations by contacting past-due consumers by phone or text more than twice in a seven-day period, caused some consumers to unknowingly enroll in a liability damage waiver through an electronic signing interface that obscured the optional nature of the waiver, and made it difficult for consumers to return leased merchandise or terminate their leases.

Under the terms of the settlement, the company agreed to: (i) clearly disclose that its product is an LTO arrangement; (ii) remove barriers to the early buyout option; (iii) allow consumers to schedule unlimited future payments and make any payment, including the final payment, through the same methods available for other payments; (iv) promptly facilitate merchandise returns upon request; and (v) comply with state consumer protection laws and debt collection regulations. In addition, the settlement requires the company to pay $2 million to the Commonwealth, which will be returned to impacted customers as restitution once it is paid, and provides nearly $5.8 million in credits to existing consumer accounts.