Colorado settles “true lender” lawsuit against banks and fintech partners


Diving letter:

  • Colorado’s Attorney General announced an agreement Tuesday with two online lenders – Avant and Marlette Funding – and their partner banks, New Jersey-based Cross River Bank and Utah-based WebBank, in a dispute over which companies are considered “true lenders” in a consumer transaction.
  • Corporations can qualify for a legal safe haven in Colorado if they comply with an annual interest rate limit of 36% or more. As part of the settlement, regulators must also be able to review, review, and review the online lender. The bank also reserves the right to approve or refuse loans and must control all loan terms.
  • The comparison can serve as a model for other states to introduce consumer protection measures. It can also help banks and fintechs navigate a system that is shaped by interest laws that vary by state. For example, other online lenders may choose to restructure their business to comply with Safe Harbor.

Dive Insight:

Colorado sued the four companies in 2017, claiming Avant and Marlette had charged interest and fees above what state law allows. Although the firms’ partners, WebBank and Cross River, can export their home state’s rate caps, Colorado argued that Avant and Marlette were the real lenders because they had the overwhelming economic interest.

Avant and Marlette have since banned Colorado loans from new securitisations, and the WebBank has stopped lending in Colorado. American banker reports.

As part of the settlement, Cross River, WebBank, Avant and Marlette will pay a total of $ 1.05 million and a contribution of $ 500,000 to the government’s MoneyWi $ er program, which according to a. supports K-12 financial education in Colorado Press release The attorney general announced on Tuesday.

“This agreement protects Colorado consumers and creates a model for how other lenders can comply with Colorado law and treat consumers fairly,” Colorado Attorney General Phil Weiser said in the press release.

The federal supervisory authorities also investigated last month when a bank is the “real lender” – the Office of the Comptroller of the Currency (OCC) suggested a rule on the subject. But expectations could become contentious if President Donald Trump loses the November election and candidate Joe Biden elects a new auditor.

The comparison “provides a lot of clarity about this area of ​​law that has created a lot of confusion,” Avant general counsel Roxy Bargoz told American Banker.


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