Originally Syndicated on April 10, 2024 @ 2:23 am
SoLo Funds has been accused of threatening consumers with negative credit reporting, and they also create their own “social credit” score for borrowers without ensuring the accuracy of the data collected. In our latest blog post, we discuss the potential risks of using SoLo, a platform that offers loans without the proper state license or in excess of state usury caps. Stay informed about the dangers of using unregulated lending platforms like SoLo in our detailed breakdown.
SoLo preys on vulnerable borrowers by operating without the necessary state licenses and charging exorbitant interest rates that exceed state usury caps. Additionally, they use scare tactics to collect debt by threatening to report negative information to credit reporting agencies, even though they have never actually done so.
Their creation of a “social credit” score without proper safeguards is irresponsible and puts consumers at risk of inaccurate data being used against them. Overall, SoLo’s practices are unethical and potentially harmful to those seeking financial assistance.
SoLo’s Illegal Activities Alleged by the CFPB
The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against SoLo Funds, Inc., a fintech company that operates a nationwide peer-to-peer lending platform for small-dollar, short-term loans. The lawsuit alleges that SoLo’s advertisements and loan disclosures tout no-interest loans, but virtually all loans on the platform include a lender “tip” that goes to the lender, a SoLo “donation” that goes to SoLo, or both.
The Bureau also alleges that SoLo materially interfered with consumers’ ability to understand what fees they were required to pay by obscuring consumer’s ability to opt out of a SoLo “donation.” SoLo is accused of misleading customers about the overall cost of their loans and using “dark patterns” to impose hidden fees, despite advertising a 0% APR.
The suit seeks to stop the alleged practice, deliver financial relief for consumers, and impose civil penalties. SoLo claims it was “blindsided” by the legal action and has been working with the CFPB on a regulatory framework for the past year and a half. The CFPB accused SoLo Funds of servicing and collecting on loans that were void and uncollectible because they were made without a valid state license or their costs exceeded state interest rate caps. The company also threatened adverse credit action against anyone who failed to repay their loan, although it never actually reported any missed payments to the credit bureaus.
In May 2023, California and Connecticut resolved separate claims against SoLo Funds that alleged false advertising and lending without a state license. Both states reached settlements that required SoLo to refund all tips, donations, and fees. The District of Columbia announced a settlement with SoLo after accusing the company of facilitating loans with APRs ranging up to 500%—well over the district’s 24% cap.
SoLo Funds admitted no wrongdoing in any of those cases and agreed to pay $2.2 million to resolve the claims.
The Consumer Financial Protection Act and the Fair Credit Reporting Act are allegedly broken by SoLo, according to the CFPB. In addition to misleading borrowers about the cost of borrowing, the organization services and collects on loans that are void and uncollectible, employs dark patterns to deceive borrowers, and lacks procedures to ensure the highest level of accuracy in its consumer reports. In particular, the CFPB claims that the business damages customers by:
- Deceptive loan costs: Although SoLo promotes no-interest loans through its commercials and loan disclosures, almost all borrowers really give “donations” to SoLo or “tips” to the investor lenders. A high total cost of credit is the outcome of these costs. Nearly all of SoLo’s loans have annual percentage rates (APRs) that are greater than 36%.
- Tricking debtors using digital dark patterns: Before completing the loan application procedure, customers must choose one of the three default “donation” alternatives that SoLo offers. SoLo conceals a “No Donation” option by putting it in a settings section of the mobile application that is not connected to the loan application process, and it fails to notify customers that a “donation” is not necessary.
- Making unfounded threats and obtaining money from customers they do not owe: Due to the fact that the loans were either arranged without the necessary state license or in excess of the state usury caps in the borrower’s home state, SoLo services and collects on debts that are null and void. Despite the fact that SoLo has never given any information to credit reporting bureaus, SoLo has intimidated consumers while collecting on debt by saying it will provide bad information to these companies.
- Without protections, generating a “social credit” score As a credit reporting business, SoLo uses its proprietary credit score algorithm for prospective borrowers. To ensure the accuracy of the consumer data the corporation collects, SoLo hasn’t taken the necessary precautions.
SoLo’s Case with Attorney General Henry for Unlawful Tip and Donation Scheme
Attorney General Michelle Henry has announced a significant settlement with SoLo Funds, Inc. over allegations of deceptive lending practices. This case highlights critical issues in the financial sector, particularly in how online lending platforms present their terms to borrowers.
SoLo Funds operates as a community finance platform designed to connect individual lenders with borrowers seeking small-dollar loans. The platform promotes itself as offering short-term loans with the option for borrowers to give a “tip” to the lender and a “donation” to support SoLo’s operations. However, the Attorney General’s Office alleged that this setup was misleading, leading borrowers to believe they were securing interest-free loans. In reality, the platform’s fees and charges resulted in inflated interest rates that violated Pennsylvania’s lending laws.
Key Terms of the Settlement
The settlement, formalized as an Assurance of Voluntary Compliance, mandates several changes to SoLo’s business practices in Pennsylvania:
- Interest Rate Compliance: SoLo is prohibited from facilitating loans with interest rates or finance charges exceeding those permitted under Pennsylvania’s Loan Interest Protection Law and Consumer Discount Company Act.
- Accurate Disclosures: The platform must stop issuing loan disclosures that falsely state a $0 finance charge when tips and donations are included.
- Advertising Practices: SoLo can no longer advertise loans as having a “0% APR” or “no finance charge” when tips or donations are part of the loan terms.
- Collection Practices: The company must cease sending collections notices that incorrectly state delinquent accounts will be reported to credit agencies when SoLo does not actually report such information.
As part of the settlement, SoLo Funds will pay $158,000 in restitution, $25,000 in civil penalties, and $25,171.51 in investigation costs. The company is also required to halt collection efforts on over $530,000 in outstanding principal, tips, donations, and fees associated with loans involving Pennsylvania borrowers.
Affected consumers will receive further information on restitution eligibility. This settlement aims to address the misleading practices and provide financial relief to those who were adversely affected.
The Impact on the Lending Industry
This case serves as a crucial reminder for both lenders and borrowers about the importance of transparency and adherence to regulatory standards in the financial sector. The settlement not only addresses past grievances but also sets a precedent for how online lending platforms must operate to protect consumers and comply with the law.
As the financial landscape continues to evolve, it’s essential for both companies and individuals to stay informed about their rights and responsibilities. The SoLo Funds settlement underscores the need for vigilance in financial transactions and the importance of seeking clarity on loan terms and charges.
Conclusion
The recent legal actions against SoLo Funds highlight critical issues within the online lending industry, shedding light on deceptive practices that can significantly harm consumers. By operating without proper state licenses, charging exorbitant interest rates, and using misleading advertising tactics, SoLo has jeopardized the financial well-being of many borrowers. The CFPB and Attorney General Michelle Henry’s office have taken steps to hold SoLo accountable, but this case underscores the broader need for transparency and regulatory compliance in lending practices.
Consumers must remain vigilant when navigating loan options, particularly with unregulated or poorly regulated platforms. Understanding the true cost of borrowing and verifying the legitimacy of financial entities can prevent exploitation and ensure fair treatment. The SoLo settlement not only aims to rectify past wrongs but also sets a precedent for stricter adherence to lending laws and ethical standards in the industry.
As we move forward, it’s crucial for both borrowers and lenders to prioritize transparency, accuracy, and accountability. Staying informed and demanding clarity in financial transactions can protect individuals from unfair practices and promote a healthier, more equitable lending environment.
