SoLo Funds settles lawsuit over allegations of predatory lending in District of Columbia

Image credit: SoLo funds

The District of Columbia Attorney General today announced an agreement with SoLo Funds, a fintech company that enables peer-to-peer lending, to settle a lawsuit that alleged SoLo Funds engaged in predatory lending practices.

The alleged practices include Los Angeles-based SoLo Funds not telling customers “the true cost of the loans on their platform” and that they “facilitated loans with over 500% APR on average – well above the District’s 24% usury cap,” according to the Attorney General’s written release.

In addition, the National Audit Office claims that the company “advertised reasonable and flexible loans without interest and fees”, but then demanded that borrowers “pay a percentage of the loan as a ‘tip’ to the lenders” and “encouraged borrowers to pay a percentage of the loan to the company as a “donation.” The Office of the Auditor General also claims that “SoLo attracted lenders to its platform by advertising that they could “earn a quick return on [their] extra money”, but “in reality, for a high percentage of the loans offered by SoLo, the borrowers either failed to repay the loans on time or at all – something SoLo also failed to disclose.”

“Our office will not tolerate fintech lenders resorting to new, deceptive practices that affect vulnerable residents who are often ineligible for traditional loans,” Attorney General Brian Schwalb said in a written statement. “SoLo attempted to hide exorbitant interest charges by misleadingly calling them ‘tips’ and ‘donations.'” This settlement makes it 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 physical store , or operate entirely online.”

SoLo Funds has agreed to make certain changes to its tips and donation practices and provide “honest disclosures” to both borrowers and lenders. The settlement also includes paying $30,000 to reimburse District of Columbia borrowers for tips and donations paid to obtain their loans and a payment to the District of Columbia.

The attorney general’s office also said it is “the first state-level enforcement agency to reach a settlement with SoLo regarding the use of tips and donations to avoid usury restrictions.”

In May 2022, the state of Connecticut issued SoLo Funds with a temporary cease-and-desist order alleging similar violations of state rules regarding tips and donations, as well as “for failing to disclose the tips and for not having in-state lending and fundraising licenses. “

Meanwhile, the District of Columbia settlement follows an agreement with the California Department of Financial Protection & Innovation announced this week that SoLo Funds will be able to resume operations in the state of California.

“SoLo has created a community funding model that is cutting edge and innovative – as demonstrated by our recent inclusion on the 2023 CNBC Disruptor 50 list,” said Rodney Williams, co-founder and president of SoLo via email. “As a result, we cannot be easily categorized in traditional frameworks. Our recent settlements in DC and CA are the culmination of discussions with each jurisdiction’s department, and we appreciate their receptivity to innovative ideas around a more inclusive financial system. SoLo is now focused on the future and we are excited to resume operations in the District of Columbia and the state of California.”

In February, TechCrunch reported that SoLo Funds had acquired over 1 million registered users and over 1.3 million downloads, making it “the largest and first Black-owned personal finance platform” to do so, Williams said at the time.

Since 2020, SoLo Funds has processed over 800,000 loans, according to the company. It also raised over $13 million in venture-backed capital from firms including Serena Ventures and ACME Capital.