California Renews $100 Million Fight Against Fintech Over 'Rent-A-Bank' Loans
By CU Today Staff —
LOS ANGELES— California's financial services regulator has appealed a state court ruling that blocked it from pursuing more than $100 million in penalties and restitution against fintech lender Opportunity Financial LLC (OppFi), escalating a closely watched legal fight over whether bank-fintech partnerships can sidestep state interest-rate caps through so-called "rent-a-bank" arrangements, according to Law360.
The appeal follows a May decision by Los Angeles County Superior Court Judge Gary Roberts, who granted summary judgment to OppFi after finding the California Department of Financial Protection and Innovation (DFPI) failed to prove that Utah-chartered FinWise Bank was merely a nominal lender. The DFPI had alleged OppFi was the loans' "true lender" and sought more than $100 million in civil penalties and restitution tied to roughly 38,000 California consumer loans that carried interest rates above the state's 36% cap, according to the American Bar Association's Business Law Today and court filings.
Judge Roberts concluded the undisputed evidence showed FinWise—not OppFi—controlled underwriting, funded the loans with its own capital, retained ownership at origination, bore the initial credit risk, maintained an ongoing interest in the receivables and oversaw compliance and marketing. He also ruled that OppFi's later purchase of most loan receivables did not transform otherwise lawful loans into usurious ones because California law determines legality when a loan is originated, the ABA analysis noted.
The appeal now gives California's Court of Appeal an opportunity to revisit the state's "true lender" doctrine and could have significant implications for bank-fintech lending partnerships nationwide. Industry attorneys have said the trial court's ruling reinforced longstanding "valid when made" principles and identified the types of bank involvement courts may view as sufficient to preserve a bank's status as the lender, while consumer advocates and regulators continue to argue such partnerships can be used to evade state usury laws.
Originally reported by CU Today.