OppFi Hit with Class Action Over Allegedly Illegal ‘Rent-a-Bank’ Lending Scheme

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A proposed class action lawsuit claims Opportunity Financial, LLC (OppFi) has operated an illegal “rent-a-bank” lending scheme through which borrowers have been charged usurious interest rates.

The 26-page case alleges OppFi has issued loans in 35 states with interest rates as high as 160 percent even though most states in which the lender operates have interest rate caps far lower than this rate.

According to the suit, OppFi attempts to evade state usury laws by operating what the complaint describes as an unlawful “rent-a-bank” scheme. Per the case, in states where charging interest rates of 160 percent is legal, OppFi names itself as the lender in borrowers’ loan contracts. In all other states, where charging 160 percent interest is unlawful, OppFi identifies itself in loan contracts as the loan servicer and names a Utah bank, such as FinWise Bank, as the lender, the suit relays. Soon after each loan is signed by the borrower, OppFi then buys 95 percent of the loan from the bank “and goes about business as usual,” the lawsuit contends.

According to the case, OppFi’s attempt to disguise itself as the loan servicer is “a sham.” In reality, the suit says, OppFi is the true lender for the loans at issue given it bears the entire risk of loss and most of the economic interest. Per the case, it is OppFi, and not FinWise or any other Utah bank named in borrowers’ contracts, that takes on the risk of poorly performing loans and pays the expenses, while the “rented” banks’ risk and reward is “virtually nil.”

Moreover, OppFi handles the acquisition, marketing, underwriting and servicing of all the loans at issue, regardless of the state in which they were initiated, according to the suit:

OppFi also bears all responsibilities under the loan contracts and issues the contracts on identical forms, according to the case. For these reasons, it is OppFi, and not FinWise or any other Utah-chartered bank, that is the true lender for the loans at issue, the suit argues.

Per the case, OppFi has nevertheless charged interest rates well above the permitted rates in many of the states in which it does business. One such state is Texas, the lawsuit says, where the interest rates on consumer loans are capped at 10 percent or at 30 percent if the lender possesses a Texas lending license. The suit contends that OppFi cannot skirt Texas usury laws by attempting to hide behind a Utah bank.

According to the case, OppFi acknowledges its potentially unlawful conduct in its own SEC filings, stating that some of its loans may be unenforceable or “otherwise impaired” if they are “subject to successful challenge that the bank partner was not the ‘true lender.’”

The lawsuit notes that OppFi agreed to pay $1.75 million and forgive $640,000 in past-due interest to settle a case brought against it by the Washington, D.C. attorney general. The defendant also agreed as part of the settlement to not offer, provide, advertise or service any loans over D.C.’s maximum interest rate cap of 24 percent, the suit says.

The plaintiff, a Texas consumer who took out loans with OppFi at interest rates of over 130 percent, looks to represent anyone in Texas who obtained a loan from, through, by way of, or with the assistance of OppFi on or after June 2, 2018 with an interest rate of over 30 percent per year.

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