The past year has been a year of ups and downs for the alternative financial services industry. The Supreme Court issued a decision in a case involving the Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) payday, vehicle title, and certain high-cost installment loans rulemaking. Federal and state regulators have continued to take action to curtail certain practices. This survey addresses compliance issues related to the alternative financial services industry, including federal and state enforcement actions, consumer litigation, and new state laws and regulations.
In May 2024, in the highest profile case in the history of small-dollar lending, the U.S. Supreme Court rebuffed a challenge to the constitutionality of the CFPB’s funding structure in a 7-to-2 decision. The Supreme Court reversed the Fifth Circuit’s decision that held that the CFPB’s funding was unconstitutional. The Court held that Congress’ statutory authorization allowing the Bureau to draw money from the earnings of the Federal Reserve System to carry out the Bureau’s duties satisfies the Appropriations Clause. The Court stressed that “an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes” and that the CFPB’s funding scheme “fits comfortably” within that framework, consistent with historical practice. Following the decision, the CFPB announced in a blog post that protections for payday and installment loans would take effect on March 30, 2025.
In August 2024, the United States District Court for the District of Utah largely ruled in favor of Snap Finance, a rent-to-own company, dismissing numerous CFPB claims arguing that the organization’s transactions constituted credit rather than leases. According to the holding, Snap’s lease does not meet the definition of credit provided in the Truth in Lending Act (“TILA”) “because it did not give consumers any right to defer the payment of debt, incur debt and defer its payment, or purchase goods or services and defer payment therefor.” Likewise, Snap’s lease-to-own agreement does not constitute a “credit sale” under the plain language of Regulation Z’s definition. The court did not dismiss Fair Credit Reporting Act (“FCRA”) claims and allowed the CFPB the opportunity to re-file a claim that renting-to-own auto repair “services,” rather than goods, constitutes credit.
In August 2023, the CFPB filed a lawsuit against Heights Finance Holding, an installment lender, alleging that it engaged in illegal “loan-churning” practices that the CFPB claims harvested hundreds of millions of dollars in loan costs and fees. The CFPB claimed that the company identified struggling borrowers and encouraged them to refinance. The CFPB also alleged that the company incentivized employees to push refinancing, focused on customers’ likelihood to refinance instead of their ability to repay, and falsely marketed refinances as fresh starts. The CFPB claimed that these practices were unfair and abusive, and sought injunctive relief, consumer redress, and a monetary penalty.
In September 2023, the CFPB and forty-one states plus the District of Columbia settled an action requiring Tempoe, a company that leased consumer goods, to pay $36 million in penalties and relief. The CFPB had alleged that the company concealed lease terms and failed to provide mandatory disclosures required by Regulation M. The CFPB also alleged that the company refused to allow certain consumers to return certain leased consumer products and ancillary services. The CFPB’s order required the company to release consumers from $33.6 million in existing lease payments, pay a $2 million penalty, and permanently cease leasing activities.
In November 2023, the CFPB fined Enova, an online lender, $15 million, claiming that the lender withdrew funds from customers’ bank accounts without permission, made deceptive statements, and canceled loan extensions. According to the consent order the CFPB had previously fined the lender $3.2 million in 2019. The CFPB alleged that the lender withdrew funds from consumer accounts without express informed consent and, in some circumstances, used bank account information purchased from online lead generators, overwriting the bank account information that borrowers had authorized. The company also allegedly granted loan extensions but then cancelled them, and instead debited consumer accounts for the full loan payment. In addition to the penalty, the CFPB banned the lender from making certain consumer loans.
In January 2024, the FTC entered a stipulated order with FloatMe, an online cash advance provider, and its founders, claiming that FloatMe misrepresented the charges for its services and the amount of cash that would be advanced to consumers, charged public assistance recipients for a monthly subscription but denied advances to them, and made it difficult for subscribers to cancel subscriptions. The defendants agreed to pay $3 million in consumer refunds; to stop deceiving consumers about the use of an algorithm or artificial intelligence; to get consumers’ express, informed consent for charges; to provide an easy method for cancellation; to stop deploying discriminatory practices; and to enact a fair lending program.
In February 2024, the CFPB issued an order establishing supervisory authority over World Acceptance, a national installment lender. The CFPB concluded that it has “reasonable cause” to find that the lender’s activities constitute a risk to consumers. The order specifies that the CFPB does not need to determine that an entity has violated federal laws or regulations to determine that the entity poses risks to consumers. Finally, the order also notes that the CFPB can rely on consumer complaints it receives in making a risk-based supervision determination.
In May 2024, the CFPB sued SoLo Funds, Inc., a peer-to-peer small dollar lending platform, alleging that it obscured fees. The CFPB claimed that the lender misrepresented loan costs, illegally charged “tip” and “donation” fees, and deceptively collected on the loans, violating the Consumer Financial Protection Act (“CFPA”) and the FCRA. The complaint alleged that the company threatened consumers that it would furnish negative information to credit reporting companies even though the company did not actually engage in credit reporting. The CFPB sought a permanent injunction against the company; monetary relief, including restitution; disgorgement; and a civil money penalty.
In May 2024, the CFPB issued an interpretive rule addressing Buy Now, Pay Later (“BNPL”) transactions. The interpretive rule states that BNPL companies “are credit card providers under Regulation Z.” Accordingly, the CFPB requires BNPL companies to provide consumers with many of the key legal protections that apply to conventional credit cards, including the right to dispute charges and demand refunds after returning a product.  The interpretive rule further provides that BNPL companies must credit refunds when consumers return products or cancel services.
The Third Circuit held in Petro v. Lundquist Consulting Inc. that the Pennsylvania Consumer Discount Company Act (“CDCA”) does not apply to consumer loans that have been subsequently charged off. The plaintiff in Petro obtained and later defaulted on a loan from a small-dollar lender licensed under the CDCA. The lender charged off the plaintiff ’s debt and sold the charged-off debt to an unlicensed third party, who in turn sold the debt to another unlicensed third party. The final purchaser hired Lundquist Consulting, Inc. (“LCI”) to collect the balance owed on the account. The plaintiff sued, alleging that LCI violated the Fair Debt Collection Practices Act when LCI filed a proof of claim in the plaintiff ’s bankruptcy proceeding. Because neither the third-party purchaser nor LCI was licensed under the CDCA, the plaintiff argued that LCI could not legally collect interest and fees as authorized under the CDCA. The court found that while the CDCA prohibits a licensee from selling a contract to an unlicensed person or entity, “a licensee that sells a charged-off obligation is not selling a defaulted loan contract; it is selling unsecured debt” and that the CDCA does not apply to such transactions.
In TitleMax of Alabama, Inc. v. Hambright, the U.S. District Court for the Northern District of Alabama held that upon default, a pawnbroker receives ownership of both the certificate of title for an automobile and the actual vehicle. The plaintiff in Hambright obtained a vehicle title pawn from TitleMax, and delivered physical possession of the certificate of title to TitleMax. The plaintiff filed a bankruptcy petition five days after the loan matured but before the thirty-day grace period for repaying the obligation expired. The plaintiff proposed to treat TitleMax as a fully secured creditor and to pay TitleMax the present value of its claim. TitleMax objected to the plaintiff ’s plan and filed an adversary proceeding against the plaintiff for a determination that it owned the plaintiff ’s vehicle. The district court held that vehicle title pawns are pawn transactions under the APA and that a pledgor who does not redeem the pledged vehicle within thirty days after the maturity date forfeits “absolute right, title, and interest in and to the vehicle—not just its paper title.”
Over the past year, state legislatures have been particularly active in the regulation of earned wage access (EWA) programs, which allow consumers to access income they have already earned before they receive their paychecks. In June 2023, Nevada became the first state to pass a comprehensive regulatory scheme for EWA providers. The new law, effective July 1, 2024, imposes licensing and other substantive requirements on providers of EWA services. The Nevada Commissioner of Financial Institutions also promulgated regulations to implement the licensing process.
Under the Nevada law, the term “EWA” means the delivery to a user of money that represents earned but unpaid income. The term “provider” includes those providing EWA services both directly to consumers, and through employer-integrated programs. Among other things, the law requires providers to disclose all fees associated with the EWA services; to allow users to cancel their participation in the EWA services; and if the provider accepts a tip or gratuity, to disclose that such tip or gratuity does not provide a direct benefit to the consumer and to provide a conspicuous option for the consumer not to provide a tip or gratuity. The law also prohibits providers from sharing fees or tips with an employer, using a consumer credit report to determine eligibility for EWA services, charging any late or other fees for failure to pay outstanding proceeds or fees, furnishing EWA information to consumer reporting agencies, or compelling payment using, among other things, judicial process or third-party collection agencies. The law also requires EWA providers to submit annual reports to the Commissioner of Financial Institutions.
Several other states passed EWA legislation over the past year. Kansas (effective January 1, 2025), Missouri (effective August 28, 2023), South Carolina (effective November 21, 2024), and Wisconsin (effective September 1, 2024) passed similar laws that also require licensing, registration, and compliance with strict conduct requirements. In addition, the Maryland Office of Financial Regulation issued guidance on EWA services, in which it opines that it would consider the following criteria in determining whether an EWA product could be a loan under Maryland law: whether the EWA provider bears the risk of loss if the consumer does not repay the advance, the level of contact the EWA provider has with the consumer, and whether the EWA provider benefits from any fees or tips paid by the consumer.
A couple of states revised their rent-to-own laws to better accommodate electronic transactions. West Virginia amended its rent-to-own laws, effective March 8, 2024, to account for rent-to-own transactions conducted online or remotely through electronic commerce. The law provides that information that would be placed on a tag in a physical sale can be disclosed electronically in a transaction conducted online or remotely through electronic commerce, so long as the information is disclosed in a clear, conspicuous, and easily understood manner. In addition, to account for such remote transactions, the law removed the prohibition on delivery or pick-up charges when the transaction takes place in any place other that the dealer’s premises.
Effective September 14, 2024, Arizona amended its laws governing rental-purchase agreements to account for remote, electronic transactions. The amended law states that information that would be placed on a tag or card in a physical sale, such as the cash price of the item and the cost of rental, can be disclosed electronically in a transaction conducted online or remotely through electronic commerce, so long as the information is disclosed in Arabic numerals that are readable and understandable by visual inspection, and before other required disclosures. In addition, the lessor must disclose, in a similar fashion, whether personal property offered for rental-purchase is not owned by the lessor.
Michigan revised a law that initially required the director of the Department of Insurance and Financial Services to deliver a report regarding deferred presentment service transaction providers following the law’s 2005 enactment to now require the director to provide an annual report each year from 2025 to 2031. In addition, the new law outlines specific items that must appear in the report, including a summary of the deferred presentment service transaction program fees received by the Department; statewide statistics concerning transaction volumes by month, transaction amounts, fees, and averages, active license locations, the total number of customers, and drawer usage of repayment plans; statistics, reported by county or zip code, concerning provider locations, transaction volumes, total amount of advances, total fees for advances, average advance amounts, average advance fees, the total number of repeat drawers, and the total number of licensee locations; the name and street address of each licensee during the immediately preceding calendar year; and the number of complaints filed with the Department against licensees and non-licensees arising from transactions that took place for the immediately preceding calendar year. The Department will publish this report on its website.
In March 2024, Illinois passed the Pawnbroker Regulation Act of 2023. The Act, effective immediately, imposes licensing requirements on pawnbrokers. The Act also includes a Pawn Customer Bill of Rights, which, among other things, imposes limits on the amount of fees a pawnbroker may collect from a consumer, requires each pawnbroker to keep signage of the permissible fees on its premises, and obligates pawnbrokers to provide consumers with a contract outlining certain key terms of the pawn transaction.
Mississippi passed two laws affecting pawnbrokers. The first, effective July 1, 2024, gives the Commissioner of Banking and Consumer Finance the authority to promulgate regulations or issue orders that establish a process to allow certain purchased goods to be stored off a licensee’s premises, at a secure, nonresidential location. The second, also effective July 1, 2024, permits a pawnbroker to impose on the consumer, separate from the main pawnshop charge, the fee charged by a third-party processing company for the use of a debit or credit card so long as the pawnbroker gives clear and conspicuous notice of the charge at the point of entry to the pawnbroker’s premises and at the point of sale. The notice must include the amount of the fee, that the fee is for the use of a debit or credit card, and the type of payment method to which the fee applies. The amount of the fee is limited to the single transaction cost charged by the third-party processor to the pawnbroker for the use of a credit or debit card.
The Colorado Department of Law announced an assurance of discontinuance (“AOD”) against MoneyLion Technologies, Inc., settling allegations that the company charged unlawful fees in connection with consumer loans. MoneyLion offered loans with rates as low as 5.99 APR to Colorado consumers through a membership program, with membership fees ranging from $19.99 to $29.99 per month. Under the AOD, MoneyLion agreed to cease originating loans under paid membership programs in Colorado and to refund $271,000 in paid membership fees to affected Colorado consumers.
The Massachusetts Attorney General obtained an AOD from Rent-A-Center, Inc. (“RAC”), settling claims that RAC engaged in unfair and deceptive collection practices. RAC allegedly filed or threatened to file criminal complaints against consumers who failed to make timely payments or return the rented item. RAC also allegedly violated a state collection regulation by exceeding collection call limits and impermissibly contacting consumers at their workplaces. Under the AOD, RAC paid an $8.75 million penalty and agreed to change its business practices to better comply with Massachusetts collection laws.
The Massachusetts Attorney General also obtained an AOD with EasyPay, LLC, settling claims that it engaged in unfair and deceptive acts and practices. EasyPay partnered with TAB Bank, a Utah state-chartered bank, to provide loans to Massachusetts consumers at rates far exceeding the 20 percent rate limitation. The attorney general alleged that EasyPay was the true lender because it purchased a 90 percent participation interest in the loans; it took most of the risk of non-performance; it protected TAB Bank against the risk of non-performance; it performed marketing services and customer service for the loans; it provided the underwriting model for the loans; and it was responsible for monitoring both fraud and credit risk. Under the AOD, EasyPay agreed to cease lending operations in Massachusetts and to provide consumer restitution totaling $625,000.
The Maryland Office of Financial Regulation entered into a settlement agreement with BNPL provider Four Technologies, Inc. for allegedly making loans or other extensions of credit without obtaining a license under the Maryland Consumer Loan Law. Under the settlement agreement, Four Technologies agreed to pay $45,000 in civil penalties and $184,000 in consumer restitution.
The Pennsylvania Attorney General entered into an agreement with Progressive Leasing (“Progressive”), settling allegations that the rent-to-own provider failed to comply with the Pennsylvania requirement to place physical price tags on merchandise offered for rent. Pursuant to the settlement, Progressive agreed to comply with all provisions of the Pennsylvania rent-to-own law and agreed to pay $950,000 in penalties and consumer restitution.
The Pennsylvania Attorney General also entered into an assurance of voluntary compliance with Community Loans of America, Inc. (“Community Loans”), settling allegations that the company made unlicensed and usurious vehicle title loans to Pennsylvania consumers. Under the terms of the agreement, Community Loans agreed to pay $2.2 million in consumer restitution as well as cancel $3.7 million in outstanding consumer debt.
In Pennsylvania v. Mariner Finance LLC, the U.S. District Court for the Eastern District of Pennsylvania found that state attorneys general have the authority under the CFPA to bring an action against a lender alleging violations of TILA. A group of state attorneys general filed suit against Mariner Finance, alleging violations of the CFPA stemming from Mariner Finance’s allegedly “predatory lending practices.” Mariner Finance filed a motion to dismiss, contending that the attorneys general did not have authority to assert claims under TILA, arguing that the provision that gives states concurrent enforcement authority under the CFPA only gave the states additional authority to enforce unfair, deceptive, and abusive acts and practices (“UDAAP”) violations and did not alter states’ authority to enforce certain federal consumer protection laws, including TILA. The court disagreed, finding that if the TILA provided for greater state enforcement authority than that granted to the states under the CFPA, the CFPA does not contract or supersede that authority.
