Interest Rates in Excess of 4000%?!?

Fintech darling Solo Funds held accountable by Connecticut Banking Commissioner

Photo by Frank Busch on Unsplash

It seems a darling of the fintech lending industry is being taken to task by the Connecticut Banking Commissioner for lending money at effective APRs in excess of 4000% — yes, you read that right.

Jason Mikula of Fintech Business Weekly tells the tale:

Apparently, the Connecticut Banking Commissioner issued a “cease and desist” order to Solo Funds for multiple violations of Connecticut state law.

It is possible to request a loan on Solo’s platform with no tip and no donation — which, apparently, was part of the company’s response to Connecticut’s investigators.

However, according to the order, every loan Solo facilitated in Connecticut included a tip or donation (emphasis added):

“Respondent has represented to the Department that ‘Borrowers may opt to include a Lender Tip or a SoLo Donation, but neither is required to submit the Loan request nor to receive a Loan.’

Nevertheless, 100% of the loans to Connecticut residents originated on the Platform from June 2018 to August 2021 either contained a Lender Tip or a SoLo Tip. In addition, Respondent recommends that consumers ‘Tip’ to receive a loan.”

Based on Connecticut’s analysis of loans facilitated in the state, the typical principal amount was $100, with an average ‘lender tip’ of $21 and an average ‘donation’ to Solo of $10 — equating to APRs that ranged from 43% to as much as 4,280%.

Despite these high costs, Solo Funds provided customers a purported Truth in Lending Act disclosure showing a “0% APR,” which, Connecticut found, was likely to mislead borrowers — per the order (emphasis added):

“Furthermore, even though all loans originated via the Platform to Connecticut consumers contained an APR between approximately 43% and 4280%, Respondent provided Loan Disclosures to the Connecticut consumers stating that the loans had APRs of 0%, likely misleading Connecticut consumers as to the loan’s APR, a material term of the loan.

Through such Loan Disclosures, Respondent provided wholly inaccurate information to Connecticut…