Subprime lender OppFi sues to continue making loans in California

Fintech lender OppFi is suing California’s banking commissioner, arguing that its high-cost loans shouldn’t be subject to the state’s 36% annual interest rate cap because they’re made in partnership with a bank.

OppFi, which is not a bank, would not be able to charge triple-digit interest rates in California on its own due to the state’s rate cap. But it has partnered in high-cost lending with Utah-based FinWise Bank, which has the ability to export Utah’s much looser interest rate rules.

Consumer advocates and state policymakers have called the arrangement a “rent-a-bank” program in which OppFi uses FinWise Bank’s charter to escape California’s 36% rate cap. But in a lawsuit filed this week, Chicago-based OppFi argued that it was not the true lender of the loan – and that, since it only provides certain services on behalf of FinWise Bank, the state rate cap does not apply.

A California law that took effect in 2020 prohibits lenders from charging annual percentage rates greater than 36% on installment loans between $2,500 and $10,000. State policymakers have warned nonbanks that partnering with out-of-state banks would be evasion of the law, but OppFi argues in a new lawsuit that the rate cap doesn’t apply to its partnership with Utah-based FinWise Bank.


OppFi says Clothilde Hewlett, who heads California’s Department of Financial Protection and Innovation, is trying to “wage war” against similar partnerships between fintech companies and banks.

“It is clear that the commissioner unequivocally decided to abuse her enforcement powers against OppFi in order to unlawfully extend the regulatory scope of the DFPI and the scope” of the state’s price cap, OppFi said in his lawsuit, which was filed in Los Angeles County. Superior Court.

OppFi is also asking for a statement that the loans, which FinWise continues to make using the OppFi platform, do not violate the rate cap. Although the agency has taken no formal action, OppFi said in a press release that it has filed a lawsuit so that it “can continue to serve nearly 7.2 million Californians in need of credit”.

California’s rate cap, which took effect in 2020, prohibits lenders from charging annual percentage rates greater than 36% on installment loans between $2,500 and $10,000.

Hewlett, which declined to comment directly on the lawsuit, said in a statement that triple-digit APRs “keep struggling Californians in a cycle of poverty and have been barred from the state” by the rate cap law. .

“Companies doing business in California who fail to comply with the law will be investigated and may face enforcement action to ensure consumer protection and compliance with California law. state,” the DFPI commissioner said.

OppFi and other high-cost lenders say higher interest rates are needed to make loans economically feasible, as they lend to borrowers with lower credit scores who often don’t qualify for bank loans. OppFi also says its website directs eligible customers for APRs below 36% to other lenders.

A few of OppFi’s competitors had considered switching to banking partnerships in California after the state enacted its rate cap, prompting a warning policy makers there that this would be an evasion of the new law.

Shortly after the law took effect, the agency contacted OppFi to request more information about its banking partnership. Last month, a senior DFPI official told OppFi that the commissioner had concluded that the OppFi-FinWise loans violated the state’s rate cap and “threatened immediate enforcement action” to end the partnership, according to the OppFi lawsuit.

“The commissioner’s threat of action poses a potentially fatal threat to OppFi’s operations in California,” OppFi said in the lawsuit, adding that its sole business in California provides technology services to the bank.

“OppFi doesn’t make the loans, it’s the bank,” the lawsuit states.

OppFi says its role in the partnership is to maintain a website for consumers to access loans; prepare a marketing strategy for FinWise; customer support and loan service; and using its algorithms to help with underwriting. The bank underwrites, funds and approves all loans, and the loan agreements “clearly identify the bank as the entity extending the credit,” the lawsuit says.

But consumer advocacy groups say OppFi and other high-cost lenders are the real lenders.

“Mere nominal approval of underwriting and making the loan is not enough to make the bank the true lender,” said Lauren Saunders, associate director at the National Consumer Law Center.

In a letter last month, the NCLC and 14 other consumer groups demand the Federal Deposit Insurance Corp., which oversees the handful of banks involved in the partnerships, to “end modern predatory bank leasing systems.”

Last year, a federal judge in California dismissed a lawsuit brought by an OppFi customer that claimed the bank violated California consumer protection laws. The company also recently colonized a lawsuit filed by the Attorney General for the District of Columbia for alleged rate cap violation. As part of the $2 million settlement, OppFi agreed to stop offering loans with APRs above the district’s 24% APR cap, either directly or in partnership with a bank.

OppFi, which went public last year, reported $293.3 million in third-quarter loan receivables, up from $240.3 million a year earlier.

Last week the company noted its former CEO Neville Crawley had resigned after less than two months at the helm. Crawley had joined OppFi last July as chairman.

The board has named Todd Schwartz, the company’s founder and executive chairman, as the new CEO.

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