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Fintech Lender OppFi Faces Trouble in Texas
Predatory lender continues rent-a-bank scheme to avoid interest rate caps
Turns out, those shiny, new, convenient fintech lenders are little more than sketchy payday loan stores dressed up in super fancy clothes.
Maybe that’s why fintech lender OppFi is again facing legal troubles.
This time, the lender is on the wrong side of the law in Texas.
Fintech company Opportunity Financial is facing a proposed class action alleging that it sought to evade Texas state usury laws by using a “rent-a-bank scheme” that the company’s own public filings have identified as a potential problem for the company.
In a complaint filed Wednesday in Austin, Texas, federal court, Lone Star state resident Kristen Michael said that loans she’d taken out with the company, which styles its name as OppFi, had interest annual percentage rates that were over 130% despite the fact that Texas law bars unlicensed lenders from making loans with APRs higher than 30%
OppFi uses a so-called “rent-a-bank” scheme to evade state rate caps. In this setup, OppFi uses a bank in a state with no rate caps to originate the loan and OppFi becomes the “servicer” of the loan.
OppFi ran into legal trouble in DC for using such a scheme to charge 160% interest rates on loans.
The DC settlement ($2 million) resolved a lawsuit filed by the Office of the Attorney General (OAG) against OppFi for misrepresenting its high interest loans as fast and easy cash and falsely claiming that its loans would help struggling consumers build credit. Instead, from at least 2018 until May 2020, OppFi provided loans to most District residents at a 160% APR — more than seven times the District’s 24% rate cap.
This type of scheme is used by a number of predatory lenders, including EasyPay Finance, which uses Utah-based TAB Bank to offer loans for car repairs with rates up to 189%.
Consumer advocates have taken to calling out these schemes and naming names when it comes to the banks participating:
It’s not yet clear whether federal regulators (like the FDIC) will take meaningful action against the banks helping predators like OppFi trap borrowers in a cycle of debt.
OppFi uses Utah-based FinWise Bank as its partner in predatory lending.
Speaking of FinTech and Usury - Let’s Take a Look at TAB Bank
A coalition of consumer groups is calling on the Federal Deposit Insurance Corporation (FDIC) to take regulatory action against Utah-based TAB Bank for what the groups call “predatory” lending practices.
The groups, including Consumer Federation of America (CFA), Americans for Financial Reform (AFR), Center for Responsible Lending (CRL), and National Consumer Law Center (NCLC) sent a comment letter to the FDIC detailing consumer complaints against TAB’s lending partner, EasyPay Finance and also submitted a petition signed by more than 44,000 individuals calling for FDIC action to rein-in the bank’s practices.
In its comment letter, the coalition argues: “In assessing whether TAB Bank is appropriately serving its communities, the FDIC should consider not merely access to credit but also the quality of credit extended. Predatory credit at high interest rates that borrowers cannot afford to repay, credit designed to evade state interest rate laws, credit that is the result of deceptive practices, and credit that leads to violations of debt collection, credit reporting, and other laws does not meet the convenience and needs of communities.”
The petition spells out the predatory practices of TAB’s partner, EasyPay Finance. EasyPay uses TAB bank to originate loans in order to evade state interest rate caps. This allows EasyPay to charge interest rates on auto repair and other loans of up to 189%.