The fintech lender SoLo Funds has reached agreements with regulators in California, Connecticut and the District of Columbia over allegations that voluntary payments it got from customers were interest charges in disguise.
SoLo Funds, which did not admit to wrongdoing under the agreements, will be required to refund payments to consumers in the two states and D.C. under the deals. The Los Angeles company says the agreements offer a "clear path forward for SoLo to continue to serve in each jurisdiction."
The company's website says it offers "simple, no-trap loans" through a platform where people can lend money to others in need of cash. It accepts tips and donations from borrowers for that service, though it notes that the payments are "optional and voluntary."
Voluntary payments have come under criticism from consumer advocates, who say they ultimately function as interest on loans and that the products should be regulated as such.
Regulators in California, D.C. and Connecticut had raised issues with SoLo Funds' model, with the latter issuing a
This week's agreement with Connecticut's bank regulator requires SoLo Funds to pay a $100,000 penalty and refund any tips, donations and fees it collected from borrowers in the state. The company has also agreed not to offer loans in Connecticut without a license or a notice from regulators that it does not need one due to changes in its business model.
Kyle George, SoLo Funds' head of regulatory and government affairs, said giving it a pathway to operate in the state "will ultimately benefit struggling Connecticuters, who have limited options for affordable small-dollar loans." He also said traditional lending products "are the most significant culprits of predatory behavior" and that new models are necessary.
SoLo Funds reached similar agreements with California's Department of Financial Protection and Innovation and the D.C. attorney general.
"This settlement makes clear that we will take decisive legal action against predatory lending models in the District and nationwide, regardless of whether the predatory lender is a brick-and-mortar store, or operates entirely online," Brian Schwalb, the district's AG, said in a news release last week.
The National Consumer Law Center praised the agreements.
"These actions against SoLo Funds are an important step in combating tricks that new fintech payday lenders are using to disguise interest and evade laws limiting predatory interest rates," NCLC Associate Director Lauren Saunders said in a statement. "A tip is something that goes to a human being after good service, not a cost paid upfront to a company to get a loan."
