On December 21, an online lending fintech agreed to a stipulated final judgment with the CFPB to resolve a complaint alleging that the company deceived consumers and violated the Equal Credit Opportunity Act (“ECOA”) (we discussed this complaint in an earlier Consumer Finance & FinTech Blog post here). The stipulated payday loans in Nevada final judgment prohibits the company from making new loans, collecting on outstanding loans to harmed consumers, selling consumer information, and making misrepresentations when providing loans or collecting debt or helping others that do so. The company also agreed to a $40,500,000 suspended monetary judgment, and a $100,000 civil penalty based on its limited ability to pay.
The complaint alleged that the company had made misrepresentations to consumers by advertising that borrowers who repaid loans on time and took free online courses would receive lower interest rates on future loans and access to larger loan amounts. This turned out to be untrue for tens of thousands of borrowers who failed to qualify for larger loan amounts and continued to be offered similar or higher interest rates compared to previous loans.
Based on these allegations, the CFPB alleged that the company deceived consumers about the benefits of repeat borrowing and violated a 2016 CFPB order that prohibited the company from mispresenting the benefits of borrowing from the company. The CFPB also alleged that the company violated the ECOA and Regulation B by failing to provide timely adverse-action notices within 30 days for over 7,400 loan applicants and issuing over 71,800 adverse-action notices that failed to accurately describe the main reason for the company denial of loan applications.
Putting in Into Practice: This one-sided resolution shows the significant risks for FinTech companies that do not comply with consumer lending laws like the ECOA. FinTech companies, especially newer lending companies, should take care to maintain compliance with relevant laws, especially if they have been subject to enforcement actions in the past.
TRENDING LEGAL ANALYSIS
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.
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.
Matthew Lin is an associate in the Government Contracts, Investigations and International Trade Practice Group in the firm’s Los Angeles office.
During law school, Matthew served as an extern with the Criminal Division of the United States Attorney’s Office for the Central District of California. Prior to law school, Matthew worked with the Los Angeles City Controller’s Office performing data analytics on the City’s financial, economic, and employment data.
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