District of Columbia Takes Action Against SoLo Funds for Charging 500% Interest Rate on Loans

Fintech lender attempted to use "tip" model to evade interest rate cap

The Attorney General of the District of Columbia announced a settlement with fintech lender SoLo Funds that includes a financial penalty, restitution for consumers impacted by the companies practices, and an agreement to comply with applicable lending laws going forward.

DC Attorney General Brian Schwalb noted that SoLo Funds used a lending model based on tips in order to hide the true cost of loans offered on the platform. Often, the interest rates on these loans would exceed 500% - far in excess of the rate cap in DC of 24%.

“Our office will not tolerate Fin-tech lenders resorting to new, deceptive practices that adversely impact vulnerable residents who are frequently ineligible for traditional loans,” said AG Schwalb. “SoLo sought to disguise exorbitant interest charges by deceptively calling them “tips” and “donations.” 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.”

In the case against SoLo, Schwalb's office alleged that SoLo encouraged borrowers to use its website and application by advertising affordable and flexible loans with no interest and no fees. Yet, by compelling nearly all borrowers to provide monetary "tips" and "donations" to obtain SoLo loans, the APR for the loans exceeded 500% per loan, which is significantly higher than the District's cap of 24%.

The settlement requires SoLo to pay a penalty to the District of Columbia as well as to reimburse consumers who paid interest rates in excess of DC's rate cap of 24%.

SoLo has also agreed to make changes to its practices such that tips are no longer required or even a factor in determining loan approval.

Photo byKonstantin EvdokimovonUnsplash