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A bipartisan coalition of thirteen state AGs filed a complaint in the Southern District of New York against one of the nation's largest non-bank installment lenders, alleging a scheme to pack consumer loans with undisclosed add-on products. The action seeks restitution, disgorgement, civil penalties, and injunctive relief.
The complaint alleges the lender marketed loans with "clear, upfront terms" but bundled optional credit insurance and membership products into loan balances at closing. Because the products were single-premium, the states allege that the full cost was financed into the principal, inflating both the loan amount and total interest. The states allege employees controlled the closing screen and rushed borrowers through documents to close the deal.
What makes this action notable is who is bringing it. Several attorneys on the complaint are former CFPB enforcement lawyers now in senior state AG roles. The lead attorney for one plaintiff state was the Bureau's fourth employee, helped draft the CFPA at Treasury, and was recruited in 2017 to build the nation's first "mini-CFPB," which has since secured over $374 million in relief. The lead attorney for another plaintiff state also served at the Bureau. The complaint reads accordingly: its use of internal company documents and its focus on process design and compensation incentives mirror the enforcement approach these attorneys developed at the federal level.
Putting It Into Practice: Lenders offering financed add-on products should review their closing process design, compensation structures, product loss ratios, and TILA characterization of add-ons. The states are treating each as independent evidence of unlawful conduct. With experienced CFPB enforcement attorneys now running these cases from state AG offices, companies should expect state-led actions that match the Bureau's historical rigor. Companies selling ancillary products in connection with consumer credit should evaluate their compliance posture now.
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