Fintech Lenders Facing Scrutiny in the States

SoLo funds reaches settlement in three states, other apps could soon see regulatory action

Andy Spears

--

Photo by Marc-Olivier Jodoin on Unsplash

Charging a 500% APR on a short-term loan falls outside the bounds even in the most payday predator friendly states.

But when you disguise your fees as “tips” or “donations” and you couch your lending model in the world of fintech, you might get away with it.

SoLo Funds is one example of a venture capital funded fintech lender that offered short-term loans of up to $500 from the comfort of an app on your phone.

These loans, though, sometimes carried some pretty outrageous interest rates.

Now, SoLo has been penalized in three states — California, Connecticut, and DC — for offering loans with APRs as high as 511%.

“Connecticut, California, and DC have called out the Emperor’s New Clothes, taking important actions against SoLo Funds, which uses so-called ‘tips’ and ‘donations’ to conceal APRs that can reach 511% or higher,” said Lauren Saunders, associate director of the National Consumer Law Center (NCLC). “All three agencies appear to have effectively barred SoLo Funds from facilitating unlicensed fintech payday loans at rates that violate state rate caps.”

The action against SoLo Funds is actually relatively mild — a small penalty and a promise not to be bad anymore. But, as Saunders points out, the punishment for SoLo also puts other app-based lenders on notice:

Fintech apps such as Earnin, Dave, Money Lion, Klover, Albert, and Chime also collect tips instead of explicit fees or interest on cash advances and overdraft services. Data released by DFPI shows the high costs of earned wage advances and other fintech payday loans, with APRs that on average exceed 330% regardless of the tip or fee model.

Regarding Dave:

A story from the L.A. Times digs deeper, explaining just how bad the fees associated with friendly, cartoon bear apps can be.

Here’s how the Times broke down the fees associated with a loan from Dave:

Given that the money had to be repaid in 12 days, the $5.99 fee and $2 tip, if considered as interest, cost Goad…

--

--

Andy Spears

Writer and policy advocate living in Nashville, TN —Public Policy Ph.D. — writes on education policy, consumer affairs, and more . . .