February 7, 2023

Volume XIII, Number 38

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February 06, 2023

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California and Georgia Reach Settlement with Rent-to-Own Companies

In two unrelated settlements, the California DFPI and Georgia attorney general each recently settled with rent-to-own companies. In the California settlement that was announced on January 10, the DFPI settled with a Los Angeles-based rent-to-own furniture provider for overcharging consumers late payment fees and failure to provide consumer disclosures required under the California rent-to-own law, the Karnette Rental-Purchase Act, in violation of the California Consumer Financial Protection Law (CCFPL). Among other things, the company failed to:

  • Disclose whether the property subject to the rental-purchase agreement is new or used;

  • Clearly and conspicuously provide the Karnette Act’s mandated contractual disclosures; and

  • Adhere to the Karnette Act’s prescribed formula for calculating the maximum cash price.

Under the settlement, the company paid $10,000 in investigative costs to the DFPI. In addition, the company must refrain from violating the CCFPL, issue refunds for excessive late fees, offer its rent-to-own products and services in compliance with the Karnette Act and applicable consumer laws, and report on its activities semi-annually to the DFPI.

On February 8, the Georgia attorney general announced a settlement with a rent-to-own company to resolve allegations that the company engaged in deceptive sales and marketing tactics in violation of the FDCPA in the course of its rent-to-own sales of furniture, electronics and appliances.

While the company did not admit to the allegations, it agreed to the following:

  • Pay $145,590 in civil money penalties, with an additional $170,910 due if the company violates any of the settlement terms;

  • Ensure its advertising, sales, and marketing practices comply with the Georgia Fair Business Practices Act and the Georgia Lease-Purchase Agreement Act;

  • Refrain from engaging in harassing and unlawful debt collection practices; and

  • Verify debts are accurate before placing them with a third-party collection agency.

Putting in Into Practice: These latest settlements demonstrate the focus state regulators are placing on the rent-to-own industry, which follows in the wake of intense federal scrutiny over the past few years. Consistent with prior enforcement actions, these latest settlements highlight requirements related to, among other things, pricing and fees, disclosures, advertising materials, and collection practices. Rent- and lease-to-own companies should also be mindful of the ongoing federal scrutiny and the possibility of joint state and federal actions in light of increased cooperation among state and federal regulators.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 56
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Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

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Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

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A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
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A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

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