Sheppard Mullin Richter & Hampton
04 January 2022
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Pursuant to the consent order, the company will not market auto
loans with loan amounts less than $10,000 to California consumers
at an interest rate greater than 36 percent plus the federal funds
rate in a program involving a state-chartered bank and will not
service any such loans for a period of 21 months from the effective
date of the consent order.
On December 14, the California Department of Financial
Protection and Innovation (DFPI) announced that it entered into a consent order with an LA-based auto title
lender to resolve allegations that the company violated
California’s the Fair Access to Credit Act’s (FACA), which
prohibits making loans of $2,500 to $10,000 with interest rates
greater than 36 percent. The focus of the consent order was 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 loans offered to California consumers.
The company offered these services at the same time that FACA
amended the California Financing Law to prohibit licensed lenders
from making loans with principal amounts of $2,500 to less than
$10,000 with interest rates greater than 36 percent, plus the
federal funds rate. The company was served a subpoena seeking
documents and information last year to assess whether the company
was evading California’s newly enacted interest rate caps
through a partnership with the out-of-state bank. After the
investigation, the company ceased marketing auto loans of less than
$10,000 to California borrowers.
Putting it Into Practice: While the most direct
impact of the order effectively ends the bank partnership
arrangement between the company and the out-of-state bank for a
period of 21 months, the broader takeaway from this recent consent
order may be for lenders and servicers to closely and continuously
monitor state and federal regulatory signals related to “true
lender,” which are likely to receive continued focus as bank
partnerships continue to thrive in the vast FinTech ecosystem (we
discussed bank partnership arrangements based on the true lender
legal theory in previous Consumer Finance & FinTech Blog
posts here and here).
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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