Is The CFPB Seeking To Expand The Definition Of Credit And Its Regulatory Reach? The Bureau Sues Snap Finance And Asserts That Snap's Transactions Are "Credit" Under Federal Law

• Published date: 28 July 2023
• Subject Matter: Consumer Protection, Media, Telecoms, IT, Entertainment, Advertising, Marketing & Branding, Dodd-Frank, Consumer Protection Act
• Law Firm: Katten Muchin Rosenman LLP
• Author: Ashley T. Brines, Christina Grigorian, Eric R. Hail and Jessica L. Harrell

On July 19, the Consumer Financial Protection Bureau (CFPB) filed a complaint against Snap Finance LLC and its affiliates (Snap RTO LLC, Snap Second Look LLC, Snap U.S. Holdings LLC, Snap Finance Holdings LLC) (referred to herein as "Snap") in the US District Court, District of Utah, for alleged violations of the Consumer Financial Protection Act (CFPA), the Electronic Fund Transfer Act (EFTA), the Truth in Lending Act (TILA), and the Fair Credit Reporting Act (FCRA), as well as applicable implementing regulations, relating to personal property lease-purchase (aka "rent-to-own") transactions. In the lawsuit, the CFPB takes aim at Snap's lease-purchase transactions and even asserts that the transactions constitute "credit" under the CFPA, thereby bringing into play numerous credit-related regulations.

Challenged Practices

The CFPB alleges that Snap engaged in unfair, misleading, and/or unlawful business practices stemming from its advertising, contracting, and servicing (including collection) of rent-to-own agreements, which the CFPB refers to as "Purchase Agreements." The areas of focus are:

Advertising to Consumers. Snap allegedly used the misleading phrase "100 Day Cash Payoff" in advertisements for its transactions and omitted any further explanation of the terms. The CFPB also complains that:

• Snap's 100-day early payout option totals more than the "cash" price of the merchandise or service.
• Consumers must affirmatively schedule a new payment amount or make a balloon payment before their 100-day deadline, even though they reasonably believe their automatically scheduled payments would fulfill their payment obligations by the close of the 100-day period.
• Consumers who miss the 100-day deadline pay significantly more than the "cash" price of their merchandise/service.

Misleading Contracting Practices. The CFPB alleges that Snap's merchant-based application and contracting process materially interfered with consumers' ability to understand the terms and conditions of their lease-purchase transactions, noting the following:

• In most cases, the application and contracting process was completed entirely on the merchant's computer or tablet.
• Merchants would frequently sign and submit agreements on behalf of consumers without the consumer's prior review of the agreement.
• Snap relied on its partner merchants to explain those agreements without providing the merchants any written guidance for doing so.
• Consumers were required to pay a processing fee before...