On December 14, the California Department of Financial Protection and Innovation (DFPI) announced that it had entered into a consent order with a Los Angeles-based auto title lender to resolve allegations that the company allegedly violated California’s Fair Access to Credit Act (FACA), which prohibits making loans of $2,500 to $10,000 with interest rates greater than 36%. The consent order focused on the auto title lender’s partnership with a Utah state-chartered bank to provide the bank with marketing and servicing services in connection with auto title lending to consumers. Californians. The company offered these services at the same time the FACA amended California’s finance law to prohibit approved lenders from making loans with a principal amount of $2,500 to less than $10,000 with interest rates of interest greater than 36% plus the federal funds rate. Last year, the company received a subpoena asking for documents and information to assess whether the company was circumventing new interest rate caps in California through a partnership with the out-of-state bank. . After the investigation, the company stopped marketing auto loans under $10,000 to California borrowers.
Pursuant to the consent order, the company will not market auto loans in amounts less than $10,000 to California consumers at an interest rate greater than 36% plus the federal funds rate under a program involving a state-chartered bank and will not provide any such service. loans for a period of 21 months from the effective date of the consent order.
Put into practice : While the most direct impact of the order is effectively terminating the banking partnership agreement between the company and the out-of-state bank for a period of 21 months, the broader conclusion of this recent order on consent may be that lenders and managers need to closely and continuously monitor state and federal regulatory signals related to the “true lender,” which are likely to receive continued attention as banking partnerships continue to thrive in the broader FinTech ecosystem (we discussed banking partnership agreements based on true lender legal theory in previous Consumer Finance & FinTech blog posts here and here).