California wants to block OppFi from new high-cost loans

California wants to block OppFi from new high-cost loans

California’s consumer protection agency wants to stop consumer lender OppFi from issuing more high-cost loans.

The state Department of Financial Protection and Innovation sought a preliminary injunction from a state court judge in Los Angeles that would prevent OppFi from making loans with interest rates above 36% to California consumers, according to a court document filed this week. The ordinance will not apply to loans that have already been issued.

“Denial of a preliminary injunction leaves other California consumers at risk of being trapped by usury loans, where they will owe more in interest in a year than the principal amount they borrowed,” according to the department’s filing .

California’s consumer protection agency wants to stop subprime lender OppFi from making more loans with interest rates above 36%. The Department of Financial Innovation and Protection says the loans violate a 2020 state law that limits fees charged to consumers.

David Paul Morris/Bloomberg

The department’s request is the latest development in one of the most high-profile efforts to curb so-called rent-a-bank operations. The operations, in which non-bank lenders partner with authorized banks, often bypass state-level limits on interest rates.

OppFi sued the department in March 2022, arguing that its high-rate loans should not be subject to California’s rate cap, which went into effect in 2020. A senior official at the department had previously “threatened” “immediate enforcement action” to OppFi after determining its loans violated interest rate law, OppFi said in its lawsuit.

The department countersued the subprime lender, seeking at least $100 million in damages. Requests that the preliminary injunction be in effect until the case is resolved. A hearing on the decision is scheduled for mid-March.

“While we do not comment on active litigation, the company intends to continue to aggressively prosecute the allegations set forth in its complaint and vigorously defend itself and its position as the matter proceeds through the litigation process,” OppFi said in a statement. .

California state law caps interest rates at 36% on installment loans between $2,500 and $10,000. OppFi, which is not a bank, said the law does not apply to its loans because it is not the actual lender of the loan and because it performs certain services only on behalf of its banking partner, Utah-based FinWise Bank.

In May 2022, four California lawmakers asked the Federal Deposit Insurance Corporation to curb partnerships between FDIC-insured institutions and high-cost consumer lenders.

Chicago-based OppFi operates in at least 34 states, including California.

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