The day after the Supreme Court ruled that its funding structure was constitutional. the Consumer Financial Protection Bureau filed a lawsuit against SoLo Funds, an online lending platform, for allegedly deceiving borrowers about the true cost of its loans. Marketed as a consumer-friendly alternative to high-cost, short-term loans, SoLo Funds has come under scrutiny for practices that the CFPB claims are misleading and exploitative. The company is also accused of attempting to collect on loans that were made unlawfully.
According to the CFPB, SoLo Funds advertises its loans as having zero interest or 0% APR. However, the platform employs dark patterns — manipulative design techniques — to ensure that nearly every borrower ends up paying additional fees, termed as “tips” or “donations.” These fees, the CFPB argues, significantly increase the total cost of the loans, contradicting SoLo’s advertised terms.
Deceptive Practices and Hidden Fees
SoLo Funds requests borrowers to pay fees to both the lenders and the platform itself. These fees are presented as optional tips or donations during the loan application process. However, the CFPB’s investigation found that the application design does not provide a clear option to choose a $0 fee, pushing borrowers to pay these extra charges. Consequently, only 0.5% of funded loans did not include a fee paid by the borrower as of December 31, 2022.
Improper Credit Scoring
In addition to the deceptive fee structure, SoLo Funds uses a proprietary credit scoring system called the “social score,” which the CFPB claims lacks adequate procedures to ensure accuracy. This score is based on personal and financial data scraped from borrowers’ mobile phones, social media, and bank accounts by third parties. The CFPB alleges that SoLo Funds has failed to maintain reasonable procedures to assure the maximum possible accuracy of the consumer reports it generates.
Collection of Unlawful Loans
The CFPB also accused SoLo Funds of servicing and collecting on loans that are void or uncollectible under state laws. These include loans made without the required state licenses or those exceeding state usury caps. Furthermore, the CFPB claims that SoLo Funds has falsely threatened borrowers with negative credit reporting to coerce repayment, despite never having reported such information to credit bureaus.
CFPB’s Legal Actions
The CFPB’s lawsuit seeks to halt SoLo Funds’ alleged unlawful conduct, secure monetary relief for affected borrowers, and impose civil money penalties. CFPB Director Rohit Chopra emphasized the bureau’s commitment to protecting consumers from deceptive financial practices, stating, “SoLo has had repeated run-ins with state regulators, and we are putting a stop to their fake tipping scheme.”
In a statement, the chief executive of SoLo said the company was blindsided by the suit.
“As a new model, SoLo has diligently followed the rules, engaging with leading legal counsel and approaching regulators requesting collaboration since its inception,” said Travis Holoway, the CEO and Co-founder of SoLo, according to a published report. “SoLo Funds has been voluntarily working with the CFPB for the last 18 months, attempting to work toward a regulatory framework that maintains its affordability for Americans. We had primarily agreed on a path forward last night, and unbeknownst to us, we were blindsided this morning with a suit.”
