OppFi and the 160% Interest Rate Loan

Fintech case in California has broad industry implications

Andy Spears

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Photo by Daniel Thomas on Unsplash

I’ve written before about shady fintech lender OppFi and their insistence that they should be allowed to charge interest rates of 160% in California. This is because they use a so-called “rent-a-bank” model and “borrow” the interest rate from Finwise, based in Utah.

Jason Mikula of Fintech Business Weekly offers an update on the OppFi/Finwise model. So far, the courts are allowing a case to proceed that could result in OppFi being forced to comply with California’s usury law.

Mikula cites legal analysis that explains that what happens in the OppFi case has broad implications for others in the fintech/rent-a-bank space:

After reviewing numerous California decisions, the court characterized the demurrer as a request by OppFi for the court “to ignore the substance of the loan transactions as alleged in the cross-complaint.” It then recited various characteristics of the Program alleged by the DFPI in its cross-complaint and stated that “[a]s alleged, the substance is that OppFi is the lender.” The court then concluded that “[i]n light of long-standing California law, at this early stage, the court cannot rule as a matter of law that FinWise is the lender of the loans at issue.”

OppFi’s entire premise is that it is using its technology platform to faciliate the loan, but that Finwise is the “true lender.” Of course, OppFi is doing all the work — finding the borrowers, taking their money, servicing the loans, even engaging in collections. They simply use Finwise as the “bank of record” so they can charge a much higher interest rate — in this case, 160%.

This same model is used by EasyPay Finance (car repair and puppy loans) and their predatory partner, TAB Bank:

EasyPay’s loans carry interest rates up to 189%.

If the California case finds that OppFi can’t use Finwise as the front for its predatory practices, this will certainly put a damper on the use of rent-a-bank schemes to facilitate usurious interest rates.

Oh, and California is not the only place where OppFi is under scrutiny for outrageous rates:

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Andy Spears

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