The Consumer Financial Protection Bureau (CFPB) recently took action against Tempoe, LLC for tricking consumers into expensive leasing agreements by concealing the contract terms and costs, and failing to provide legally required disclosures. Forty-one states and the District of Columbia are entering into a parallel multi-state settlement addressing the same conduct. Tempoe offered financing at the point of sale to customers at major retailers such as Sears and Kmart. By hiding the true nature of the agreements, Tempoe tricked consumers into signing the leases, and consumers found themselves unable to return products and on the hook for unexpectedly large payments. The CFPB is permanently banning Tempoe from offering consumer leases, requiring the company to close each of its outstanding consumer accounts, and ordering the company to let customers keep leased merchandise with no further payment, representing approximately $33.6 million in released payments. Tempoe is also paying a $2 million penalty, with $1 million deposited into CFPB’s victims relief fund and $1 million paid to the states entered into the settlement.
Tempoe, LLC is an Ohio-based nonbank consumer finance company that offered lease purchase agreements to consumers nationwide. Between 2015 and 2022, Tempoe entered into over 1.8 million financial agreements with consumers. The enforcement action covers conduct by Tempoe from January 1, 2015 to the present.
Tempoe purchased personal property and services from retailers and then leased them to consumers. Typically, consumers were offered Tempoe’s product after applying and being rejected for conventional financing when trying to make a purchase at a retailer. Consumers made periodic payments for an initial term of five months, after which they had to decide whether to purchase the items with a large additional payment, or return the property and receive nothing in return. Consumers were offered leases for items such as auto parts, large home appliances, furniture, toys, and jewelry. Tempoe would pay the retailer for the item, charge the consumer an initial payment at the point of sale, and then charge additional payments on a bi-weekly or monthly basis.
Specifically, the CFPB found the company:
- Concealed the terms of its lease agreements: Some consumers did not receive a copy of their lease agreement until after the transaction, while others never received a copy and instead relied on oral descriptions from employees inside the retailers. Tempoe encouraged employees to avoid calling the product a “lease.” Some consumers discovered only at the conclusion of their initial term that they did not own their items and were required to pay significantly more.
- Trapped consumers with unreasonable return practices: Consumers who wanted to cancel their lease agreement with Tempoe after the first 30 days, but within the initial five-month term, were required to return the product to Tempoe. However, Tempoe did not accept returns of many items, including property costing less than about $300. Consumers were therefore forced to exercise the “purchase option” on the lease, paying far higher than the original price.
- Failed to provide legally required disclosures: Most Tempoe lease agreements provide that unless consumers returned an item or exercised a purchase option after the initial five-month term, Tempoe would continue monthly auto-debiting the consumer for the full term of the contract, which was typically 18 or 36 months. In violation of the Consumer Leasing Act and its implementing regulation, Regulation M, Tempoe did not provide required disclosures to consumers who continued this month-to-month leasing for more than six months. Tempoe generated approximately $192 million in revenues from about 325,000 consumers from this unlawful conduct.
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices. The Act also provides the CFPB with the authority to enforce, as in this case, the Consumer Leasing Act and its implementing regulation, Regulation M.
The order requires Tempoe to:
- Release consumers from existing lease agreements: Tempoe must release all consumers with existing lease agreements from their leases, including from any payments owed and without regard to whether such leases are in default. Tempoe must also allow consumers to retain the leased products with no further financial obligation. This includes approximately 19,300 leases with an aggregate remaining balance of approximately $33.6 million.
- Permanently cease leasing activities: Tempoe is banned from engaging in any future leasing activities.
- Pay into the CFPB victims relief fund: Tempoe is also paying a $2 million penalty, with $1 million deposited into CFPB’s victims relief fund and $1 million paid to the states entering into the settlement. For consumers who did not receive required disclosures after the initial five-month term, and as funds permit, the CFPB will work to get them monetary relief from the CFPB’s victims relief fund.
Read the order here.