CFPB Shuts Down Online Lending Fintech for Violating ECOA and CFPB Consent Order | Sheppard Mullin Richter & Hampton LLP
On December 21, an online lending fintech agreed to a final judgment stipulated with the CFPB to resolve a September 2021 complaint alleging the company misled consumers and violated the Equal Credit Opportunity Act (“ ECOA”) (we discussed this complaint in a previous consumer article). Finance & FinTech blog post here). The stipulated final judgment prohibits the company from making new loans, collecting outstanding loans from aggrieved consumers, selling consumer information and making false statements when making loans or collecting debt or help others who do. The company also accepted a suspended money judgment of $40,500,000 and a civil penalty of $100,000 due to its limited ability to pay.
The September 2021 complaint alleged that the company misrepresented consumers by announcing that borrowers who repaid their loans on time and took free online courses would receive lower interest rates on future loans and have access to larger loan amounts. This proved wrong for tens of thousands of borrowers who did not qualify for larger loan amounts and continued to be offered similar or higher interest rates than previous loans.
Based on these allegations, the CFPB alleged that the company misled consumers about the benefits of repeat borrowing and violated a 2016 CFPB order that prohibited the company from misrepresenting the benefits of borrowing from the business. The CFPB also alleged that the company violated the ECOA and Regulation B by failing to provide notices of adverse action within 30 days for more than 7,400 loan applicants and issuing more than 71,800 notices of action. unfavorable that did not accurately describe the main reason for the company’s refusal. loan applications.
Put into practice : This unilateral resolution shows the significant risks for FinTech companies that do not comply with consumer lending laws like the ECOA. FinTech companies, especially new lending companies, should be careful to comply with applicable laws, especially if they have been subject to enforcement actions in the past.