California financial regulators reached an agreement with a Los Angeles-based, community-finance company where its representatives agreed to pay a $50,000 penalty and to reimburse consumers for donations they made to the company.
SoLo Funds admitted no wrongdoing in the May 8 consent agreement with the California Department of Financial Protection and Innovation. The company stopped operations in California in May 2021 after the investigation began though it still operates in other states.
SoLo Funds had offered a peer-to-peer lending service where borrowers used the app to seek loans of up to $500 for up to 15 days from individual lenders. The service advertises itself as a Black-owned financial technology company that serves those without banking connections, offering an alternative to pay day lending services.
Since reaching an agreement with the state, SoLo Funds has not resumed operations in California. However, a top company official said it plans to start up again without offering specifics.
“We plan to adhere to all requirements in the consent orders and launch the updated model in the state of California,” said Rodney Williams, co-founder and president of SoLo Funds in an email to The Bee.
What regulators were concerned about with SoLo
Borrowers using the app were told that they would receive no-interest “fast loans” that would be closed in “just a few hours,” the consent agreement states.
The California settlement said borrowers were pressured into paying 12% tips to the lenders and donations of up to 9% to SoLo Funds.
“Pop-up messaging in the platform urged borrowers to offer the maximum tip amount to have their loan request fulfilled. One such pop-up claimed that borrowers who offered the maximum tip amount were two times more likely to have their loan funded,” the consent agreement said.
California regulators said pop-up messaging in the app also urged borrowers to offer a tip to SoLo Funds of up to 9%.
“When making a loan request, Borrowers could not dismiss the donation request prompt; the only way to disable the donation request pop-up was to toggle an unadvertised setting buried in the Platform’s general settings panel,” the consent agreement states. ”Further, this setting had to be turned off each time the Borrower took out a loan.”
The state Department of Financial Protection found the vast majority of borrowers in California paid both the tip and the donation.
Williams, president of SoLo Funds, said tips have always been optional.
“Lenders do this every day,” he said, referring to a new group of online lenders that offer advances on paychecks and solicit tips for the short-term loans.
State financial regulators are studying the issue for those lenders and have proposed rules that would limit the amount of tips and require financial companies to calculate the tips as part of the overall interest charges.
For Solo Funds, Williams said nearly 100% of loans have tips but only 83% have a donation to the company.
Back in February, SoLo Funds announce in a news release that former California DFPI Commissioner Manny Alvarez had joined the company’s team as a advisor. It’s unclear what role he played in the California settlement.
“Manny joined SoLo as an advisor for no compensation,” Williams said in a statement. “Once he heard our story, he felt that the company was receiving selective enforcement that may be racially discriminatory and felt compelled to assist SoLo. “
A SoLo Funds spokesperson said that Alvarez was not available for comment. Efforts to reach out to Alvarez directly were unsuccessful.
Regulation beyond California
The California consent agreement did not give the annual percentage rate that SoLo Funds consumers were paying, but Washington D.C. financial regulators stated in different a consent agreement with SoLo Funds, also on May 8, that the the true cost of loans exceeded more than 500% APR.
D.C. Attorney General Brian L. Schwalb said in a statement that the tips and donations on SoLo’s platform were “actually exorbitant interest charges.” Washington D.C. fined SoLo Funds $30,000.
Lenders won’t be able to see whether a borrower is offering a tip, under the terms of the Washington D.C. consent agreement.
A third jurisdiction, the state of Connecticut, also took action against SoLo Funds in May. The company entered into a consent agreement with the Connecticut Department of Banking, agreeing to a $100,000 penalty and reimbursement of all tips and donations.
The Banking Commissioner found that SoLo Funds acted as a consumer collection agency and brokered small loans for prospective borrowers without the required licensing.
SoLo Funds admitted no wrongdoing in the Washington D.C. and Connecticut consent agreements.
A consumer advocate praised the enforcement actions against SoLo Funds, calling it “an important step.”
“They are trying to disguise interest rates by using tips and donations,” said Lauren Saunders, associate director of the National Consumer Law Center. “A tip is something that goes to a human being after good service, not a cost paid upfront to a company to get a loan.”
Saunders said, however, that she was “disappointed” that California’s $50,000 penalty against SoLo Funds was so small and that regulators only required the agency to reimburse donations consumers made to SoLo Funds but not the tips to lenders.
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