OppFi to pay more than $ 2 million to settle DC’s continuing interest rate cap


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Dive brief:

  • Loan manager OppFi agreed to pay $ 1.5 million in restitution to more than 4,000 Washington, DC residents in a settlement announced Tuesday after the DC attorney general sued the company for charging interest at a rate Annual Percentage (APR) well above the district’s 24% cap.
  • The lender also agreed to waive over $ 640,000 in interest owed by these borrowers and pay an additional $ 250,000 to the district. OppFi agreed to stop offering loans with APR above 24% to residents of DC, either directly or in partnership with a bank.
  • OppFi resolves the problem “to avoid the expense of protracted litigation,” the company said in a statement, according to American Banker. He denies the accusation by DC Attorney General Karl Racine that he engaged in deceptive or unfair practices.

Dive overview:

Racine alleges that OppFi provided DC residents with 160% APR loans between 2018 and May 2020.

“So-called financial services companies that operate in the District of Columbia – whether physically or via the Internet – cannot legally charge DC consumers above that 24% rate,” Racine said in a report. press release Tuesday. “Companies that do so violate DC law and will be held accountable.”

Tuesday’s settlement marks the latest fallout from the debate over which party is the “real lender” when fintech As OppFi partners with a bank to lend to consumers. Some state attorneys general have argued that fintechs use state-based partner banks with lax restrictions on interest rates to bypass caps in more stringent states.

OppFi’s partner banks – FinWise Bank, First Electronic Bank, and Capital Community Bank – are all licensed in Utah, where the law does not specify an interest rate cap.

The Colorado attorney general settled online lenders Avant and Marlette Funding in August 2020 – along with their partner banks, New Jersey-based Cross River Bank and Utah-based WebBank – after the state sued them. four companies in 2017, claiming Avant and Marlette were charging interest and fees above the state’s 36% limit. Although WebBank and Cross River may export interest rate caps from their home states, Colorado argued that Avant and Marlette were the real lenders because they held the predominant economic interest.

Two months later, the Office of the Comptroller of the Currency (OCC) sought to clarify the notion of “true lender”, ruling that a bank is the true lender on loans made in partnership with fintechs if, at the date of origination, it finances the loan or is named lender in the loan agreement. Also, if a bank is named as the lender in the loan agreement and another bank funds the loan, the first is the real lender, the OCC said.

The Senate and House voted this year to repeal the OCC rule under a Congressional Review Act (CRA) resolution – a decision President Joe Biden codified in June.

Eight attorneys general, including Racine, sued the Federal Deposit Insurance Corp. (FDIC) in August 2020 as part of a strike against that regulator’s “valid-once-established” rule, which also governs the scope of state interest rate caps.

Tuesday’s settlement isn’t OppFi’s first run-in with regulators this year. The Consumer Financial Protection Bureau (CFPB) opted in August not to take coercive action against fintech following an investigation into whether the company’s practices violated the military lending law, which caps at 36% the interest rate that lenders can charge military borrowers on consumer loans.

OppFi – formerly OppLoans – changed its name this year before a merger with specialist acquisition firm FG New America Acquisition Corp.

“OppLoans will continue to advocate for the need for banks to better serve the millions of everyday consumers who struggle to obtain credit cards and other forms of credit,” an OppFi spokesperson told American Banker.

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