High-cost lender reaches $2 million settlement with D.C. authorities

The subprime consumer lender OppFi has reached a $2 million settlement with the District of Columbia’s attorney general over allegations that the company violated local interest rate caps.

The settlement is the latest development in a battle that pits state and local officials across the country against high-cost lenders. The lenders argue that their loans are not subject to state and local interest rate limitations because they are made in partnership with banks that have the ability to export their home-state rules.

Under the settlement announced Tuesday, Chicago-based OppFi will refund and waive payments for more than 4,000 D.C. residents whose loans had interest rates above the district’s annual percentage rate cap of 24%. The D.C. attorney general’s office had sued OppFi for charging residents APRs of up to 198%.

Bloomberg

“So-called financial services companies that operate in the District of Columbia — either brick-and-mortar or via the internet — cannot lawfully charge DC consumers above that 24% rate,” D.C. Attorney General Karl Racine said in a press release. “Companies that do, are violating DC law and will be held accountable.”

OppFi, which uses the OppLoans brand and offers installment loans to people who often don’t qualify for traditional credit, denied Racine’s allegations that it engaged in deceptive or unfair practices. The company said in a statement that it decided to resolve the issue “to avoid the expense of protracted litigation.”

“OppLoans will continue to champion the need for banks to better serve the millions of everyday consumers who struggle to qualify for credit cards and other forms of credit,” an OppFi spokesperson said.

The company agreed to stop offering any loans to D.C. consumers with annual percentage rates above 24%, either directly or in partnership with a bank.

The OppLoans product is offered elsewhere in partnership with three Utah-chartered banks: FinWise Bank, First Electronic Bank and Capital Community Bank.

Officials in various states have continuously raised alarms over what they view as “rent-a-bank” arrangements, in which nonbank lenders partner with banks to make high-cost loans that they would not be able to offer by themselves.

Racine was part of a group of AGs who sued the Federal Deposit Insurance Corp. last year over a rule that they argued could lead to more such partnerships. State officials also sued the Office of the Comptroller of the Currency over a related “true lender” rule written during the Trump administration, though Congress nixed that rule earlier this year.

Last year, Colorado’s attorney general settled litigation against two online lenders and their partner banks that was similar to the OppFi case in D.C. The Colorado agreement allowed the bank-fintech loan partnerships to continue as long as the APRs do not exceed 36%, and the companies follow certain other conditions.

OppFi, which went public this year, reported $293.3 million in loan receivables in the third quarter, up from $240.3 million a year earlier. In August, the company said that Consumer Financial Protection Bureau officials had decided against recommending an enforcement action over its loans to members of the military, resolving an investigation by the CFPB.