CFPB Sues FinTech Lending Platform
The CFPB sued a FinTech online lending platform for, among other allegations, using "digital dark patterns" to deceive borrowers and misrepresenting fees when marketing to consumers.
According to the Complaint, filed in the U.S. District Court for the Central District of California, the company operates a nationwide website and mobile-application based peer-to-peer marketplace ("Platform") through which consumers can obtain small-dollar, short-term loans. The CFPB alleged that the company "markets its online lending platform to prospective borrowers as a consumer-friendly alternative to high-cost, short-term loans. But misleads borrowers with advertising and disclosures that falsely tout no-interest loans when, in fact, consumers are routinely subject to fees that result in an exorbitant total cost of credit."
The CFPB alleged that the company violated the Consumer Financial Protection Act ("CFPA") and the Fair Credit Reporting Act ("FCRA") by misleading borrowers with false advertising, claiming "no interest" loans while imposing high fees. Among other charges, the agency claims that the company serviced and collected on loans that were void or uncollectible due to state laws, failed to ensure the accuracy of credit information shared with lenders and falsely threatened borrowers with credit bureau reporting.
The CFPB asked the Court to (i) permanently enjoin the company from committing future violations of the CFPA, the FCRA or any other provision of "Federal consumer financial law," (ii) award monetary relief against the company, including restitution, refund of moneys, disgorgement or compensation for unjust enrichment and payment of damages; (iii) award a civil money penalty and (iv) costs.
Commentary
This enforcement action comes one day after the Supreme Court decision upholding the constitutionality of the CFPB's funding structure (see related coverage). It also marks the CFPB's first contested enforcement action since January.
The case demonstrates the CFPB's interest in addressing "digital trickery," "dark patterns," deceptive interest and fee charges and credit reporting. The CFPB's Complaint takes issue with the FinTech company's use of a proprietary credit scoring tool, which the CFPB says aggregates data from sources like users' social media accounts, bank accounts and mobile devices to produce a "social credit score." The CFPB has expressed concern that the social credit score serves as a credit report for use by lenders on the platform to assess users' creditworthiness.
This action also challenges the FinTech company's "tipping-based" business model, which, according to some regulators and consumer advocates, is a way to reframe interest and fees as "tips" to avoid state usury laws and disguise the true cost of financing. Similar concerns have been raised against digital small-dollar lenders and earned wage advance providers.
Finally, this action illustrates the collaboration and partnership between federal and state regulators, as the FinTech company has been the subject of various state enforcement actions in recent years.