26 July 2023
Goodwin Procter LLP
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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 t،se
amounts as monthly payments for the consumer wit،ut disclosing it.
Then, the Snap Defendants did not provide periodic statements
s،wing the financing schedule. Finally, the Snap representatives
did not explain the one ،dred-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 w، 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
First, the customer has to specifically ask to surrender the
merchandise to get their money back, alt،ugh 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 ،nor
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 ،uct is a new buy back option, and they have to keep the
merchandise-they are not offered a termination. Id. at
This case s،ws that the CFPB continues to target companies that
offer high risk consumers financing options at a higher price, and
that t،se companies s،uld take care to make sure that they are
complying with any recent regulatory guidance.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.
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