California Case High-Interest Lenders: Opportunity Financial (OppFi), a Chicago lender, faces a California ruling that might change the internet lending industry. Judge Timothy Dillon will rule if Opportunity Financial (OppFi) is breaking state law by charging high interest rates on modest loans.
This decision could test the internet lending industry. The California Department of Financial Protection and Innovation raised the complaint. It claims that OppFi’s loans, which often have interest rates over 150%, violate the state’s 36% interest cap to prevent it from conducting business there.
This ruling could affect more than California. It may inspire other governments to investigate a complex “rent-a-bank” partnership. Digital lenders have avoided state-imposed interest rate caps by working with Utah banks.
However, OppFi claims that its relationships to these banks assist smaller state-based financial institutions compete and help people with weak credit. The business says some borrowers need cash immediately for medical bills or car repairs. In 2022, the Federal Reserve found that 37% of US consumers could not afford a $400 unexpected payment. This reveals that many Americans are financially vulnerable.
Legal experts and consumer allies have spoken out about the case more than OppFi and DFPI executives, who have not. Associate Director of the National Consumer Law Center Lauren Saunders believes a California victory might lead to nationwide crackdowns if the correct example is established. The Saunders group has been monitoring high-interest lenders and has noted that several have departed California.
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This lawsuit examines the definition of “true lender,” which is unclear in state and federal law. OppFi’s lawsuit stems from its relationship with Utah-based FinWise Bank. OppFi believes the bank is the real supporter because it invented the loans and funded them. The California law team claims that OppFi is the real lender because it chooses borrowers and buys loans. They argue that OppFi should be capped by the state’s interest.
The state is trying to get an injunction to halt OppFi from granting or collecting on loans with interest rates over 36% while the lawsuit is heard, in addition to legislative and legal maneuvers. OppFi claims that this would affect its company and threaten its FinWise relationship. This is because capping interest rates would make it hard for consumers to repay their loans.
As the court battle continues, other states are exploring for alternatives, like Colorado’s new law, which leverages a rare federal language to avoid recognizing other states’ interest rates. Because it’s unclear where a loan was madein the borrower’s state or the lender’s countrythese laws may not be effective.
When he described how difficult the issue was, Ballard Spahr fintech startup attorney Ron Vaske stated it best. He said, “That’s really the million-dollar question.” The outcome of this court fight could revolutionize the US online lending ecosystem and directly impact OppFi and the DFPI.
Our Reader’s Queries
What is the highest interest rate allowed by law in California?
In California, the maximum interest rate for consumer loans is 10% per year, unless there is an exception which we will delve into shortly. This limit is in place to prevent usury, which is the practice of charging excessively high interest rates on loans.
What is the predatory lending Act in California?
Being accused of predatory lending due to deceptive sales tactics that enticed the borrower to obtain or seek a loan from you can result in legal prosecution. This law carries a misdemeanor charge, which can lead to a maximum of six months in a county jail and a fine of up to $2,500 if convicted.
Who is exempt from the California usury law?
Real estate brokers are exempt from usury laws when the loan is secured by real estate, regardless of whether they are acting as a broker or not. This exemption also applies to lending institutions like banks, credit unions, finance companies, and pawn brokers.
What is the California Truth in lending law?
The Truth in Lending Act (TILA) guarantees that consumers receive essential information about their credit transactions. State disclosure laws are only overridden by TILA if they conflict with it. The CFPB has the power to determine if there is any inconsistency between the two.