4000% Interest Rates from Lending Apps
Plus, what to do about errors on your credit report
It seems a darling of the fintech lending industry is being taken to task by the Connecticut Banking Commissioner for lending money at effective APRs in excess of 4000% — yes, you read that right.
Jason Mikula of Fintech Business Weekly tells the tale:
Apparently, the Connecticut Banking Commissioner issued a “cease and desist” order to Solo Funds for multiple violations of Connecticut state law.
It is possible to request a loan on Solo’s platform with no tip and no donation — which, apparently, was part of the company’s response to Connecticut’s investigators.
However, according to the order, every loan Solo facilitated in Connecticut included a tip or donation (emphasis added):
“Respondent has represented to the Department that ‘Borrowers may opt to include a Lender Tip or a SoLo Donation, but neither is required to submit the Loan request nor to receive a Loan.’
Nevertheless, 100% of the loans to Connecticut residents originated on the Platform from June 2018 to August 2021 either contained a Lender Tip or a SoLo Tip. In addition, Respondent recommends that consumers ‘Tip’ to receive a loan.”
Based on Connecticut’s analysis of loans facilitated in the state, the typical principal amount was $100, with an average ‘lender tip’ of $21 and an average ‘donation’ to Solo of $10 — equating to APRs that ranged from 43% to as much as 4,280%.
Despite these high costs, Solo Funds provided customers a purported Truth in Lending Act disclosure showing a “0% APR,” which, Connecticut found, was likely to mislead borrowers — per the order (emphasis added):
“Furthermore, even though all loans originated via the Platform to Connecticut consumers contained an APR between approximately 43% and 4280%, Respondent provided Loan Disclosures to the Connecticut consumers stating that the loans had APRs of 0%, likely misleading Connecticut consumers as to the loan’s APR, a material term of the loan.
Through such Loan Disclosures, Respondent provided wholly inaccurate information to Connecticut consumers and caused loan transactions to appear more advantageous than they truly were.”
Umm, that’s just plain bad.
Have You Checked Your Credit Report?
In a blog post on the subject, the CFPB notes that errors in credit reports can have devastating consequences for consumers.
Even a seemingly minor inaccuracy in a credit report can lead to a consumer being denied a loan, housing, or job. However, credit reporting companies’ customers are usually the lenders, landlords, and employers who purchase credit reports, not the consumers whose financial lives are affected by them. This raises a real concern that credit reporting companies won’t pay enough attention to disputes or other issues that consumers raise about their reports.
So, what if you find an error?
What happens, then, when there is an error on your credit report and it is hurting your overall credit picture?
The consumer protection attorneys and Finn Law Group offer some guidance in terms of what happens when you dispute an item on your credit report.
Here’s how they describe the process:
First, credit reporting agencies will investigate the credit dispute and determine whether or not the information on the credit report is accurate with the credit subscriber. If the credit agency finds that the information is inaccurate, they are supposed to correct it and notify you of the correction. However, if the credit agency finds that the information is accurate, they will not make any changes to your credit unless you provide them with additional documentation to prove that the credit reporting error is indeed an error.
In short, the consumer must be vigilant in getting an error corrected. Of course, that doesn’t mean you need to hire one of those sketchy credit repair companies. Those outfits typically charge you a high price for things you can do on your own, for free.
Sometimes, credit reporting agencies use shady tactics:
The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against one of the largest credit reporting agencies in the United States. The CFPB alleges that Transunion used digital dark patterns — design and user interface elements created to manipulate users into taking a desired action — to lure consumers into enrolling in its services.
Often, these agencies use something called “digital dark patterns” to trick consumers into buying products they don’t need.