CFPB drops Snap Finance lawsuit

The Consumer Financial Protection Bureau (CFPB) has officially dismissed its lawsuit against Snap Finance, a prominent lease-to-own fintech provider, following a significant adverse credit ruling that undermined the agency’s legal arguments.

Background of the Lawsuit

• The CFPB initially filed suit against Snap Finance in July 2023, alleging that the company’s rental-purchase agreements violated several federal consumer financial laws, including the Truth in Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), the Fair Credit Reporting Act (FCRA), and the Consumer Financial Protection Act (CFPA).

• The Bureau claimed Snap Finance targeted consumers with limited access to traditional credit (referred to as “ALICE” consumers: Asset-Limited, Income-Constrained, Employed), offering agreements that often resulted in consumers paying more than double the cash price over a 12-month period.

• The CFPB alleged these agreements were misleadingly presented as short-term lease-purchase options when, in the Bureau’s view, they were actually credit arrangements subject to federal disclosure and servicing requirements.

Core Allegations

• Failure to provide required TILA disclosures for credit sales.

• Conditioning credit on preauthorized electronic fund transfers, allegedly violating EFTA and Regulation E.

• Deceptive and abusive marketing and contracting practices, including obscuring key terms and impeding contract termination.

• Unfair collection and credit reporting practices, such as threatening actions not taken and sending payment demands to consumers with no outstanding obligations.

Legal Developments and Dismissal

• In 2024, a federal judge accepted Snap Finance’s argument that lease-to-own financing is not subject to the specific credit laws cited by the CFPB, dismissing most of the Bureau’s claims and significantly narrowing the scope of the case.

• The remaining claims centered on alleged violations of the Fair Credit Reporting Act (FCRA).

• Rather than proceed with the limited remaining claims or attempt to refile, the CFPB voluntarily dismissed the lawsuit with prejudice on May 27, 2025, permanently closing the case.

Summary Table: Key Events

How did Snap Finance successfully argued their agreements were "rental-purchase" not credit?

Snap Finance successfully defended its lease-to-own agreements as non-credit transactions through strategic contract language and legal arguments centered on statutory definitions. Here’s a breakdown of their approach, with actionable insights for alternative lenders:

Key Legal Arguments and Contract Features

1. Structural Distinction from Credit

Snap framed agreements as true leases by:

• Explicitly disclaiming credit relationships: Contracts stated transactions were "not credit or a loan" but "lease-purchase agreements" where Snap retained ownership until full payment24.

• Avoiding debt language: No mention of interest rates, principal balances, or APR. Payments were labeled as "lease fees" rather than loan repayments27.

• Ownership transfer mechanics: Merchandise ownership transferred only after completing all payments or exercising early buyout options47.

2. Termination Rights

Contracts allowed consumers to terminate obligations by returning merchandise, a hallmark of lease agreements:

• Surrender clauses permitted ending agreements without penalty if goods were returned in acceptable condition310.

• This contrasted with credit arrangements, where returning collateral doesn’t absolve debt obligations9.

3. Payment Structure

Snap avoided "debt deferral" characterization by:

• Structuring payments as fixed lease terms (12-18 months) rather than open-ended credit lines7.

• Offering early buyout discounts (e.g., 100-day payoff option) without framing them as accelerated debt repayment7.

Court-Tested Legal Strategies

Statutory Definition Avoidance

Snap convinced the court its agreements didn’t meet federal credit definitions under:

• Truth in Lending Act (TILA): No "credit sale" occurred because there was no immediate transfer of ownership9.

• Consumer Financial Protection Act (CFPA): Transactions weren’t "financial products/services" since they lacked debt relationships9.

• Electronic Fund Transfer Act (EFTA): Mandatory ACH payments were tied to lease terms, not credit conditions3.

Functional Equivalence Defense

The court rejected CFPB’s argument that leases were credit-equivalent, noting:

• Consumers could walk away without residual obligations by surrendering goods39.

• No evidence of hidden interest charges – total costs were tied to merchandise value, not risk-based pricing79.

Actionable Recommendations for Lenders

Snap’s victory hinged on meticulous alignment with lease law fundamentals rather than credit regulations. For non-traditional lenders, success lies in avoiding statutory credit triggers while maintaining transparent, operationally consistent lease structures. Regularly audit contracts to ensure no implicit debt relationships are created through servicing practices or verbal representations58.

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