The Consumer Financial Protection Bureau (CFPB) sued SoLo Funds, alleging the company deceived borrowers who believed they were receiving interest-free, zero-fee loans. The fintech, which facilitates peer-to-peer lending, is accused of misrepresenting the total cost of its loans by obscuring interest rates and charging users “tips” and “donations.”
While SoLo has faced issues with state-level regulators, the CFPB felt it was time for federal intervention. The bureau alleged SoLo committed several other violations, such as purposefully camouflaging contract details, falsely threatening users with credit score repercussions, and collecting on loans they shouldn’t have.
“The CFPB is suing SoLo for using digital trickery to hide interest and fees on its online loans,” CFPB Director Rohit Chopra said in a prepared statement. “Virtually all loans on the SoLo Platform include a lender ‘tip’ that goes to the lender, a SoLo ‘donation’ that goes to SoLo, or both…we are putting a stop to their fake tipping scheme.”
Forced Fees
SoLo leadership said they were taken aback by the lawsuit because they had been working to establish a regulatory framework with the CFPB for the past 18 months and felt the two sides had reached a resolution.
The company insists its fees are discretionary, but during the SoLo application process, users only have a choice on which percentage to donate, and 0% is not an option.
SoLo also gave lenders the impression they would receive fees, making customers who fail to “donate” unlikely to receive a loan. The CFPB estimated that 99.5% of all loans on the platform at the end of 2022 included fees.
Ill-Gotten Gains
The CFPB has had fintechs in its sights for some time. The bureau recently penalized Chime for not returning refunds to its customers on time. The CFPB has asserted that fintechs that handle large amounts of transactions should be held to the same standards as banks and credit unions.
SoLo received an early seven-figure investment from tennis champion Serena Williams and achieved over one million users as of early 2023. It bills itself as a company that is democratizing access to capital by facilitating community finance.
The CFPB’s action comes after the company has already faced suits from California, Connecticut, Maryland, and the District of Columbia. Part of the bureau’s goal is to change SoLo’s business practices and prevent future violations. It also aims to force the fintech to return its “ill-gotten gains.”
