Pennsylvania Attorney General Michelle Henry just announced an $11 million settlement with a rent-to-own provider resolving allegations of deceptive and predatory financing practices. The May 15, 2023, settlement, which is awaiting court approval, resolves allegations that Snap Finance LLC and its affiliates (“Snap”) disguised the nature of financing products it offered, concealed outstanding balances, engaged in deceptive collection practices, and used a web portal that allowed retailers to sign consumers up for financing without their knowledge, among other claims.
AG Henry’s initial complaint alleged violations of several Pennsylvania laws, specifically the state’s Unfair Trade Practices and Consumer Protection Law, Rental-Purchase Agreement Act, Goods and Services Installment Sales Act, and Fair Credit Extension Uniformity Act. Snap denies all allegations.
The AG’s press release highlights allegations that Snap advertised rental-installment contracts as “100-Day Cash Payoffs” when they were in fact disguised 12-month lease or loan agreements with fees reaching 152% APR. It is not clear whether the contracts provided for a 100-day payoff option that defaulted to a longer-term loan or lease if certain consumer obligations were not met, or if there was some other mechanism that Snap used to square its advertised claims with the substance of its consumer contracts. The settlement agreement appears to require substantiation of many statements made by Snap during the origination and servicing of its contracts. The agreement also imposes injunctive requirements related to virtual leasing activities.
Per the terms of the settlement, Snap is required, in part, to:
- Avoid advertising using the terms “finance” or “financing” without conspicuously disclosing that the contracts are actually leases, rent-to-own agreements, or lease-to-own agreements;
- Ensure its agreements comply with the substantive requirements of the Pennsylvania Rental-Purchase Agreement Act regulating advertisements, disclosures, contract provisions, and costs;
- Avoid purchasing closed-end contracts (presumably from originating merchants) if Snap knows, or has a reasonable basis to know, that the seller failed to comply with the state’s Goods and Services Installment Sales Act;
- Comply with E-SIGN or Pennsylvania’s Electronic Transactions Act when entering into contracts with consumers electronically and make required disclosures only via methods that Snap reasonably expects will lead to consumers viewing the disclosures and affirming the agreement;
- Not represent or imply that for leases where the maximum term has not passed that lessees cannot surrender their merchandise directly to Snap or that lessees can only return merchandise to the merchant;
- Not represent or imply that nonpayment of any debt owed will result in the seizure, attachment, or sale of any leased property unless such action is lawful and the company intends to take such action;
- Conduct at least annual reviews of its merchant guidelines and training materials to ensure compliance with the terms of the settlement for the next five years; and
- Perform a compliance audit using an outside auditing firm to audit Snap’s compliance with the settlement, which audit is to include a sampling of complaints, contracts, and customer call recordings.
The settlement requires Snap to pay the Commonwealth of Pennsylvania $8.25 million, which comprises consumer restitution, civil penalties, and costs. In addition, Snap is required to charge off the balances of delinquent lease-to-own accounts signed in a one-year period from 2019 to 2020 ($3.15 million in aggregate).
The settlement is notable because it goes beyond merely directing Snap to comply with applicable laws to enjoining specific activities that are not expressly prohibited by applicable law. The settlement should serve as a reminder to financial service providers engaging in point-of-sale financing, and rent-to-own companies specifically, that the types of federal and state legal requirements that could apply to a rent-to-own contract depend on the specific terms of the contract and possibly the course of dealing between the parties. Moreover, regardless of whether the contract takes the form of a loan, or a lease subject to the federal Consumer Leasing Act or state law, the federal prohibition on Unfair or Deceptive Acts or Practices (“UDAP”) would apply. Finally, the Pennsylvania action further stresses the need to consider whether a company’s vendor oversight program is appropriate and sufficiently robust to mitigate material third-party risk.