Last week, the Consumer Financial Protection Bureau (CFPB or Bureau) filed a complaint against SoLo Funds, Inc., a fintech company operating a small-dollar, short-term lending platform. The CFPB alleges that SoLo Funds engaged in deceptive practices related to the total cost of loans, servicing, and collection of void and uncollectible loans in violation of the Consumer Financial Protection Act (CFPA) and engaged in providing consumer reports governed by the Fair Credit Reporting Act (FCRA) but failed to ensure the maximum possible accuracy of those consumer reports.

The CFPB alleges that SoLo Funds operates a nationwide online platform where consumers can obtain loans ranging from $575 to $20. SoLo Funds brokers these loans between consumers and investors. According to the complaint, while the company markets itself as a consumer-friendly alternative to high-cost, short-term loans, it misleads borrowers by advertising no-interest loans when, in fact, consumers are routinely subject to fees. According to the complaint, almost all of SoLo Funds’ loans carry an equivalent annual percentage rate (APR) of over 36% and many loans carry an APR in excess of 300%.

The CFPB alleges that despite advertising no-interest loans, the company prompts borrowers to select a “tip” for the lender and a “donation” to SoLo during the application process. According to the CFPB, consumers only see options for what percentage of a donation or tip to give and none of the options is zero. According to the complaint, from March 2018 through December 2022, borrowers took out over 540,000 loans on SoLo’s platform, resulting in over $12 million in lender “tips” and over $6 million in “donations” to SoLo. SoLo also informs prospective lenders of the fee they will receive from consumers to fund a loan, meaning consumers who do not pay a fee are unlikely to get their loans funded. As of December 31, 2022, only 0.5% of funded loans did not include a fee.

The CFPB also alleges that SoLo Funds services and collects on loans that are void and uncollectible under state licensing and usury laws. Nonetheless, the CFPB claims that SoLo Funds deceptively represents that these loan amounts are due and attempts to collect (a throwback to the theory the CFPB has used in previous cases, like the one against Think Finance).

Further, the Bureau alleges that SoLo Funds gathers credit information about prospective borrowers and combines this information into a credit score — the SoLo Score — which it provides to prospective lenders. The CFPB claims that by using its own credit scoring method for potential borrowers, SoLo Funds acts as a consumer reporting agency, but fails to maintain reasonable procedures to ensure the maximum possible accuracy of its score. This is one of the novel and unusual aspects of this case, and one which we expect to be watching closely.

Finally, the CFPB alleges that SoLo Funds has repeatedly attempted to coerce payment on loans by falsely threatening to report borrowers to the credit bureaus, even though the company has never reported any information to credit reporting companies.

For relief, the CFPB seeks to permanently enjoin SoLo Funds from committing future violations of the CFPA and FCRA, monetary relief for borrowers, restitution, disgorgement, and a civil monetary penalty.