A major point-of-sale financing and leasing company and the Federal Trade Commission (FTC) have reached a proposed settlement to resolve an investigation into whether the company’s practices and representations to retail consumers violated the FTC Act. The announcement of the settlement highlights the importance of disclosing all material pricing terms to consumers, including in an e-commerce environment and, for point-of-sale financing companies, reviewing and synchronizing their promotional messages with retail partners. The settlement also revealed disagreements among the Commissioners on issues of individual liability and the proper measure of monetary relief.

The settlement resolves an investigation into Aaron’s, Inc. and its wholly owned subsidiary, Progressive Leasing (Progressive), regarding disclosures related to lease-to-own and other financial products. Under the proposed agreement, which remains subject to the approval of the United States District Court for the Northern District of Georgia, Progressive would make a payment of $175 million to the FTC and enhance certain of its compliance-related activities, including monitoring, disclosures, and reporting.

Progressive partners with a network of retailers, including both traditional brick-and-mortar and online companies, and markets and sells rent-to-own payment plans to those retailers’ customers. Consumers typically make an initial payment and sign an agreement automatically enrolling them in a 12-month (or some other period) payment plan with regular recurring charges, which are automatically debited from the consumer’s bank account.

According to the FTC’s complaint, Progressive induced consumers, who visited retailers to purchase items such as furniture, jewelry, and mobile phones, to enter into rent-to-own payment plans by misrepresenting that the consumers would pay only the advertised retail sticker, cash, or “same as cash” price for the merchandise. In fact, the FTC alleges, in most cases Progressive charged consumers substantially more than the retail price—frequently twice as much if they made all scheduled payments under the plans. According to the FTC, Progressive’s disclosures were inadequate and its application process was misleading, consisting of confusing web pages, inconspicuous hyperlinks and scroll bars, and fine-print “disclosures” that failed to indicate the full cost of Progressive’s payment plans. The complaint also points to various marketing materials developed by Progressive’s retail partners that falsely promised “same as cash” prices and represented that no extra fees, charges, or costs were associated with Progressive’s rent-to-own plans. The FTC’s complaint stated that Progressive was aware of consumers’ confusion, as more than 15,000 complaints were received over one 15-month period.

While Progressive has not admitted any wrongdoing, the company reached a tentative agreement with FTC staff with respect to the financial terms of the settlement in December 2019. In January 2020, the parties agreed in principle on the terms of the related consent order, including the compliance-related requirements.

In a dissenting statement, Commissioner Rebecca Kelly Slaughter contended that the proposed settlement does not adequately remediate harm or achieve appropriate deterrence. She advocated for (i) higher monetary relief, closer to the total amount Progressive charged consumers over the cash price—in excess of $1 billion; (ii) individual liability for Progressive’s CEO because he participated directly in the allegedly illegal practices or had authority to control them and because Progressive’s parent company, Aaron’s, had been subject to prior FTC actions; and (iii) charging Progressive with a violation of the Restore Online Shoppers’ Confidence Act (ROSCA), which makes it “unlawful for any person to charge or attempt to charge any consumer for any goods or services sold in a transaction effected on the Internet through a negative option feature” unless the person clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information. Commissioner Slaughter ultimately concluded that the proposed resolution of the case does not sufficiently meet the FTC’s enforcement goals.

Commissioner Christine S. Wilson disagreed, explaining in a concurring statement that (i) a careful and robust analysis by the FTC’s Bureau of Economics supported the proposed monetary judgment, which will provide redress to Progressive consumers; (ii) individual liability is inappropriate here, where Progressive and Aaron’s are two different companies, run by different management, and there is no reason to believe that any violation by Aaron’s is linked culturally to the present allegations against Progressive; and (iii) the facts do not support a characterization of the Progressive lease as an automatically renewing contract subject to ROSCA, nor should ROSCA apply to the type of transaction here—an in-store transaction involving a face-to-face conversation between a customer and a retail salesperson.

Although not part of the settlement, Aaron’s, along with other lease-to-own companies, received an unrelated CID from the FTC in April 2019, which focused on particular transactions involving the contingent purchase and sale of customer lease agreements. Aaron’s reached an agreement in principle with the FTC to resolve that CID in August 2019. The proposed consent agreement, which would prohibit such contingent purchases and sales of customer lease portfolios but requires no monetary payment, remains subject to the FTC’s approval.

These recent investigations demonstrate the current regulatory climate for lease-to-own companies and the heightened scrutiny by federal regulatory authorities, such as the FTC, on the subprime financial marketplace in which the lease-to-own industry operates. These companies are subject to the requirements of a patchwork of federal, state, and local laws and regulations, which regulate, among other things, pricing and fees, disclosures, advertising materials, and collection practices. Additionally, regulators are holding these businesses to higher standards of training, monitoring, and compliance, which can be difficult and expensive. Given this current climate and recent enforcement activity, point-of-sale financing and leasing companies should prioritize review of their disclosures and promotional messages to ensure accuracy and compliance.

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For more information, please contact Jonathan L. Pompan at 202.344.4383 or jlpompan@Venable.com.

Jonathan L. Pompan, partner and co-chair of Venable’s Consumer Financial Services Practice Group and CFPB Task Force, advises on advertising, marketing, and consumer financial services matters. He represents clients in investigations and enforcement actions brought by the CFPB, FTC, state attorneys general and regulatory agencies. He frequently leads multidisciplinary teams that assist with consumer financial services transactions and regulatory due diligence.

Katelyn J. Patton is an associate in Venable’s Advertising and Marketing Practice Group, representing clients in a broad range of industries on matters related to advertising, marketing, and intellectual property law. Her practice includes private and government litigation, federal and state government investigations, and client counseling.

This article is not intended to provide legal advice or opinion and should not be relied on as such. Legal advice can be provided only in response to a specific fact situation.