On July 19, 2023, the Consumer Financial Protection Bureau (“CFPB”) sued Snap Finance LLC, Snap R TO LLC, Snap Second Look LLC, Snap U.S. Holdings LLC, and Snap Finance Holdings LLC (collectively, the Snap Defendants or Snap).  The complaint alleged that the Snap Defendants violated the: Consumer Financial Protection Act (“CFPA), 12 U.S.C. §§ 5531(a) and (d)(1), 5536(a)(1)(A),(B); the Truth in Lending Act and Regulation Z, 15 U.S.C. § 1638; 12 C.F.R. §§ 1026.17, 1026.18; the Electronic Fund Transfer Act (“EFTA”) and Regulation E, 15 U.S.C. § 1693k; 12 C.F.R. § 1005.10(e)(1); and the Fair Credit Reporting Act and Regulation V, 15 U.S.C. § 1681 et seq. and 12 C.F.R. § 1022.42(a), (b).  The Snap Defendants offer financing of a broad range of goods that ranged from jewelry to furniture to tires in over forty-seven states.

The complaint targets Snap’s business model, which provided higher-risk consumers—known as “Asset-Limited Income-Constrained and Employed”—with “expensive,” one-year financing.   See Complaint para. 3.  Specifically, the CFPB alleged that Snap’s financing was illegal for various reasons.  First, the Snap Defendants used misleading marketing, and their offers of financing were confusing.  Second, the cost to finance the item was too expensive, twice the original price.  Additionally, the financing was difficult and confusing to cancel if the customer was unhappy. Id.  at paragraph 4-5.  The CFPB also alleged that the Snap Defendants used threatening servicing practices.  Id. at 8. 

In particular, the CFPB alleged that the Snap Defendants falsely advertised their programing as being a 100-day cash pay off, when it really was selling a one-year commitment.  Id at 31.  (“Consumers with Purchase Agreements commonly believed they had entered into a 100-day financing agreement, under which their automatically scheduled payments would fulfill their payment obligations by the close of the 100-day period.”).  This misleading advertising led consumers to sign an agreement they did not really understand.  Id. at 26-27.

The CFPB alleged that Snap did this through various misleading tactics, including the following.  In the first instance, Snap created an automated 12-month pay-off schedule and used those amounts as monthly payments for the consumer without disclosing it.  Then, the Snap Defendants did not provide periodic statements showing the financing schedule.  Finally, the Snap representatives did not explain the one hundred-day pay off amount that is necessary to obtain the payment discount option, instead leaving the consumer with the more costly option.  Id.  These behaviors are alleged to have violated the CFPA and TILA.  Id. at 107-115, 129-238.

The CFPB also claims that the way that Snap Defendants prevent termination is misleading and in violation of the CFPA.  Id. at 139-143.  In fact, the financing agreement “provide[s] consumers who are current on their payment obligations with the ‘Right to Terminate’ their future payment obligations by returning or surrendering their financed merchandise to Snap Finance.”  (emphasis added).   Id. at 66.  However, the CFPB alleges that the Snap Defendants violate this provision with the following misrepresentations.

First, the customer has to specifically ask to surrender the merchandise to get their money back, although they are not instructed by anyone at Snap to do so.  Id. at 54.   If a customer says they want to return the merchandise, Snap representatives are told not to offer the customer the “Right to Terminate” process referenced above.  Id. at 61.  Second, the Snap Defendants tell the consumer go to the original merchant.  Id. at 62.  The merchant usually will not take the merchandise, and Snap tells the consumer that Snap has to honor that merchant’s wishes, which is not consistent with the Right to Terminate provision above.   Id.  at 64-65.    Finally, the only option snap offers the consumer when they are dissatisfied with a product is a new buy back option, and they have to keep the merchandise–they are not offered a termination.  Id. at 69.

This case shows that the CFPB continues to target companies that offer high risk consumers financing options at a higher price, and that those companies should take care to make sure that they are complying with any recent regulatory guidance.

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