WASHINGTON, D.C. — Imagine for a moment that you’ve borrowed money under the premise of zero-interested loans, only to be tricked into paying hidden fees disguised as “tips” or “donations”. For thousands of customers, this is not a piece of fiction but an alarming reality of dealing with the online lending platform, SoLo Funds. The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against SoLo, accusing the company of using misleading practices to swindle borrowers out of their earnings.
SoLo has managed to carve out a niche for itself by positioning as a consumer-friendly alternative to high-cost, short-term loans. However, the CFPB alleges that their advertised 0% APR loans are far from the truth. The intricately designed “dark patterns” in the application process ensure that almost all borrowers end up paying a fee, contrary to their zero-interest expectations.
SoLo is a nonbank financial technology company headquartered in the sunny city of Los Angeles. It operates an online platform where consumers can obtain short-term loans, with the maximum and minimum amounts being $575 and $20, respectively. The company serves as a broker between borrowers and investors, charging “tips” and “donations” as fees.
To determine the borrower’s credit score, SoLo utilizes a specialized “social score”, crafted by aggregating personal and financial information from borrowers’ mobile phones, social media, and bank accounts. While the company claims these fees are voluntary, the CFPB alleges otherwise.
Here’s the twist. When consumers reach the payment page, there are no options to bypass the fee payment. The implication is clear – those who refuse to pay these disguised fees are unlikely to get their loans funded. An alarming statistic reveals that only 0.5% of funded loans did not include a fee paid to the lender by the borrower as of December 31, 2022.
The company hit a new low when it began servicing and collecting on loans that were either made without a required state license or exceeded state usury limits. Furthermore, SoLo subjected consumers to false threats of negative credit reporting, even when the company had no history of reporting any information to such agencies.
In light of these deceptive practices, the CFPB is seeking injunctions against SoLo to prevent any future violations. Monetary relief for borrowers, forfeiture of ill-gotten gains, and a civil money penalty are also among the remedies sought.
The CFPB’s allegations follow hot on the heels of state enforcement actions across the country. With cases stretching from California to the District of Columbia, a common theme emerges – SoLo’s deceptive advertising practices and the masking of fees as “tips” and “donations”.
In the end, it only takes one bad apple to taint the entire barrel. We must scrutinize the rapid expansion of the fintech sector to avoid such scenarios. As for SoLo Funds, it’s a stark reminder that no amount of digital trickery can outshine the power of regulatory scrutiny.
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