Banking and Finance Law Daily D.C. AG sues online lender for making predatory and deceptive loans
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Tuesday, April 6, 2021

D.C. AG sues online lender for making predatory and deceptive loans

By Nicole D. Prysby, J.D.

The OAG alleged that Opportunity Financial, LLC deceptively marketed illegal high-interest loans to District consumers through a "rent a bank" scheme with a Utah-based bank.

District of Columbia Attorney General Karl A. Racine filed a lawsuit alleging that Opportunity Financial, LLC (OppFi) is a predatory online lender that deceptively marketed illegal high-interest loans to D.C. consumers. The D.C. Office of the Attorney General (OAG) alleged that OppFi violated District law by misrepresenting its high interest "OppLoans" as fast and easy cash and falsely claiming that its loans would help struggling consumers build credit. OppFi charged exorbitant interest rates of up to 198 percent—more than eight times the District’s 24 percent rate cap. The OAG also alleged that OppFi used a "rent a bank" scheme to try to skirt state and local laws limiting high interest rates loans. OppFi is not a licensed moneylender in D.C. and partnered with a state-chartered bank in Utah (FinWise Bank) to provide OppLoans, which are ultimately controlled by OppFi. The OAG alleged OppFi’s deceptive and unfair conduct violates the District of Columbia Consumer Protection Procedures Act, and is seeking a court order voiding loans improperly made to District residents and barring OppFi from engaging in misleading business practices in the future. The lawsuit also seeks restitution for consumers, civil penalties, fees, and costs.

The complaint, filed in the Superior Court in the District of Columbia, alleges that OppFi used a "rent a bank" scheme to try to skirt state and local laws limiting high interest rates loans. Though OppFi is not a licensed moneylender in the District of Columbia, it advertised, offered, provided, and serviced loan products, called OppLoans, to thousands of D.C. residents. OppFi, a Delaware corporation headquartered in Illinois, partners with a state-chartered bank in Utah (FinWise Bank) to provide OppLoans, but OppFi ultimately controls these loans, taking on the risks but keeping the profits. FinWise’s risk and reward in conjunction with these loans is minimal, as its fees and expenses are capped under its agreements with OppFi. OppFi’s assumption of the risk and purchase of the receivables is guaranteed through agreements with FinWise. As OppFi admitted in a February 2021 presentation, for each customer that provides $1,657 in revenue, OppFi realizes all $535 in profits generated by the loan. FinWise realizes only a portion of the total $138 in servicing costs generated on that loan. The remainder of the revenue goes towards write-offs, acquisition costs, and interest expenses on the debt that OppFi incurs to finance its lending. OppFi also conducts and pays for all the marketing of OppLoans.

According to the allegations, OppFi repeatedly misrepresents and overstates the benefits of OppLoans in order to entice consumers to take out loans from OppFi. For example, OppFi advertises its loans as superior to payday loans because they are "faster, more affordable and more personal than payday loans." Payday loans are illegal in D.C., and thus OppFi’s comparison of its products to such illegal loans is misleading. More fundamentally, a consumer borrowing from OppFi will pay significantly more to repay a loan from OppFi than a loan from a payday lender. For example, a typical payday lender charges a fee of $15 per $100 borrowed. For a payday loan of $1,000, the fee would be $150. Yet, if an OppFi customer borrows that same $1,000, at an APR of 160 percent and a payment term of nine months (the common terms for an OppLoan), that consumer would pay back $734.63 above the principal amount borrowed for a total of $1,734.63.

The OAG is seeking a court order voiding loans improperly made to District residents and barring OppFi from engaging in misleading business practices in the future. The lawsuit also seeks restitution for consumers, civil penalties, fees, and costs.

Companies: FinWise Bank; Opportunity Financial, LLC

MainStory: TopStory DistrictofColumbiaNews DebtCollection EnforcementActions Loans UtahNews

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