October 5, 2022

Volume XII, Number 278

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October 03, 2022

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DC OAG Reaches $4 Million Settlement with FinTech Over Claims of Predatory Lending

On February 8, the District of Columbia attorney general announced a settlement with a FinTech company for alleged violations of the District of Columbia Consumer Protection Procedures Act (CPPA) by marketing high-costs loans carrying interest rates exceeding D.C.’s interest rate caps. The complaint, filed in June 2020, alleged that the company offered two loan products to D.C. residents with APRs ranging from 99 to 251 percent, exceeding D.C.’s rate cap limit of  24 percent.

According to the AG, the company—who has allegedly never possessed a money lending license in D.C.—violated the CPPA by:

  • Unlawfully misrepresenting it is allowed to offer loans in D.C. and failing to disclose or adequately disclose that its loans contain APRs in excess of D.C. usury limits;

  • Engaging in unfair and unconscionable practices through misleading marketing efforts; and

  • Violating D.C. usury laws.

The complaint notes that the FinTech partnered with two state-chartered banks to offer the loan products at issue. The complaint alleged that the company is engaged in a “rent-a-bank” scheme by directing and controlling the funding of loans and is therefore the true lender.

According to the settlement, the company will pay $3.3 million to refund over 2,500 District consumers, waive over $300,000 in interest owed by those consumers, and pay a $450,000 civil money penalty.

Putting it Into Practice:  This latest settlement comes on the heels of a case in which the DC OAG settled with an online lender to resolve similar allegations that the FinTech provided deceptive loans to over 4,000 D.C. consumers and charged interest rates at seven times above the D.C. rate cap.  DC joins a number of states that have pursued similar enforcement actions in recent years where the state effectively won the “true lender” battle by securing an agreement or court decision that capped interest rates and required licensure of the nonbank entity. Other states are passing anti-evasion laws, which potentially have the same effect of limiting the ability of bank partnerships from offering loans above the usury rate (we discussed this trend in previous Consumer Finance and FinTech blog posts here and here).   Regardless of the state terrain, the regulatory exercise for FinTechs that leverage the bank partnership model for lending should continue to carefully monitor each state’s regulatory movements on true lender and any risks posed by state usury limits.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 40
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
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