On December 14, the California Department of Financial Protection and Innovation (DFPI) announcement that he entered a consent order with a Los Angeles-based auto title lender to resolve allegations the company violated California’s Fair Access to Credit Act (FACA), which prohibits granting loans from $ 2,500 to $ 10,000 with interest rates above 36%. The consent order focused on the auto title lender’s partnership with a Utah state chartered bank to provide the bank with auto title lending marketing and service to California consumers. . The company was offering these services at the same time that the FACA was amending California’s financing law to prohibit approved lenders from making loans with a principal amount of $ 2,500 to less than $ 10,000 with low interest rates. Interest greater than 36%, plus the federal funds rate. Last year, the company received a subpoena to request documents and information to assess whether the company was escaping the newly enacted interest rate caps by California through a partnership with the Bank of the outside the state. 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 an amount 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 service any of these loans for a period of 21 months from the effective date of the consent order.
Put into practice : While the order’s most direct impact effectively terminates 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 consent order may be that lenders and service providers monitor state and federal regulatory signals related to the ‘real lender’, which are likely to receive continued attention as banking partnerships continue to thrive in the broader FinTech ecosystem. (we have discussed banking partnership agreements based on real lender legal theory in previous Consumer Finance & FinTech Blog Posts here and here).