Dive Brief:

• The business practices of Rent-A-Center's Acima unit are under investigation by the Attorney General of Nebraska, together with a coalition of attorneys general from 38 other states.
• In its latest 10-Q, the company disclosed that Acima received a letter on Nov. 1 from Nebraska's attorney general that noted subpoenas or civil investigative demands related to state consumer protection laws would be forthcoming.
• Rent-A-Center completed its acquisition of Acima, which specializes in virtual lease-to-own financing, in February. Acima is also under investigation by the federal Consumer Financial Protection Bureau, which filed a civil investigative demand for documents and data prior to the Rent-A-Center acquisition. 

Dive Insight:

Not even a year has passed since Rent-A-Center struck a deal worth nearly $1.3 billion in cash, plus company stock, to acquire Acima. The deal was meant to expand Rent-A-Center's reach as a partner with other retailers as it looks beyond its own showrooms and tries to fashion itself into a widespread lease-to-own platform. 

"Their scale enhances our ability to compete for high-value national retail accounts," Rent-A-Center CEO Mitchell Fadel said of Acima in February, according to a Seeking Alpha transcript. "Their underwriting is best-in-class with a high-performing decision engine that supports a wide range of verticals. They bring extensive data and digital expertise and a superior back-end infrastructure."

Founded in Salt Lake City in 2013, Acima's revenues ballooned from $97 million to nearly $1.3 billion in 2020. It has partnered with many big-name retailers, including Best Buy, Overstock, Bob's Discount Furniture, Mattress Firm and Ashley HomeStore. 

It's not clear what the state and federal investigations into Acima pertain to specifically. At the time of disclosure, Rent-A-Center said it not yet received a specific demand or subpoena from the attorneys general.

The Consumer Financial Protection Bureau investigation has led to further requests for information from the company, after the initial civil investigative demand from Oct. 1, 2020. Rent-A-Center said it is in the process of responding to the additional requests and that the Consumer Financial Protection Bureau has not made any specific allegations yet.

Acima's name comes up more than 600 times in the Consumer Financial Protection Bureau's database of consumer complaints, most of them around credit reporting and debt collection. Acima's former owners agreed to indemnify Rent-A-Center for certain losses related to civil investigation demand, with $50 million escrowed at the closing of the deal.

The lease-to-own business historically has come with social, regulatory and legal baggage. As Acima acknowledges to its users, the lease-to-own model inflates the ticket price of items. The optics of charging those with low incomes or poor credit more through a leasing arrangement have long been problematic.

As an activist investor put it a few years ago, Rent-A-Center's "Achilles' heel" was public perception of the company as a "predatory lender" that "[takes] advantage of a financially challenged customer by locking them into expensive obligations which perpetuates a 'cycle-of-debt.'"

Rent-A-Center and its peers say they provide financing to a segment of consumers who otherwise wouldn't be able to make those purchases at all. It's been a profitable business for Rent-A-Center, which has an operating margin of more than 20% in its namesake business.