A California Judge Upholds OppFi’s Lending Program
A California judge recently ruled in favor of lending fintech OppFi in its legal battle against California’s financial regulator. The regulator had sought to shut down OppFi’s lending program and impose fines on the fintech for allegedly charging illegal interest rates. The ruling marks a significant victory for OppFi in the ongoing dispute.
Judge’s Decision on OppFi’s Banking Partner
Judge Gary Roberts of the Superior Court of Los Angeles County sided with OppFi in the case, stating that OppFi had demonstrated that its banking partner, Utah-based FinWise Bank, was the true lender of OppLoans. OppLoans are short-term loans offered to borrowers with poor credit through OppFi’s platform.
The California Department of Financial Protection and Innovation, under then-Commissioner Clothilde Hewlett in 2022, had sought to apply the California Financing Law to OppLoans. The law, amended in 2020, imposed a cap of 36% on interest rates for small loans. However, the DFPI alleged that OppLoans were charging rates as high as 160%.
Arguments and Counterarguments
The DFPI contended that the relationship between FinWise Bank and OppFi was a “rent-a-bank ruse” designed to circumvent interest rate limits. They claimed that OppFi was the true lender of OppLoans, despite FinWise being an out-of-state bank not subject to California’s interest rate caps.
OppFi, on the other hand, argued that FinWise was the true lender, as the bank controlled the application and underwriting process, funded and owned the loans, bore the risk of loss, and independently reviewed and approved all marketing materials related to OppLoans.
Judge’s Verdict and Future Plans
Judge Roberts ruled in favor of OppFi, stating that the DFPI had not provided sufficient evidence to prove that the relationship between OppFi and FinWise was a sham to cover up usurious transactions. He acknowledged OppFi’s demonstration that FinWise was not merely a dummy lender.
Following the favorable decision, an OppFi spokesperson expressed satisfaction with the outcome and indicated the company’s readiness to proceed accordingly. The DFPI declined to comment on the ruling.
The decision was hailed as a significant validation of the bank-fintech partnership model, with legal experts noting that it rejected the DFPI’s attempt to apply a “true lender doctrine” and undermine the federal interest rate exportation framework.
OppFi’s Acquisition Plans
Interestingly, OppFi seems to be shifting away from the fintech-bank partnership model by acquiring its own bank. The fintech recently announced plans to purchase Arizona-based BNCCORP and its subsidiary BNC National Bank for $130 million. The acquisition is expected to be finalized in the fourth quarter.
This move signals OppFi’s strategic shift towards establishing its banking operations, potentially reducing its reliance on external banking partners.
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