CFPB Sued Lending Platform, Misleading 0% APR loans

On May 17, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against a California-based fintech company that operates a nationwide peer-to-peer lending platform.

The CFPB alleges that the company engaged in unfair, deceptive, and abusive practices, as well as violations of the Fair Credit Reporting Act.

According to the lawsuit, the company markets itself as offering loans with a 0% APR. However, the CFPB claims that the company uses manipulative tactics, known as "dark patterns," to ensure that nearly all borrowers pay fees in the form of "tips" or "donations." These fees can result in a total cost of credit exceeding 300%, despite the company's advertisements and loan disclosures suggesting no interest.

The CFPB also alleges that the company presents borrowers with three default options for "donations" or "tips," requiring them to select one before proceeding with the loan process. The company allegedly fails to inform consumers that these contributions are voluntary and makes the "No Donation" option difficult to find.

Furthermore, the lawsuit asserts that many of the loans offered by the company are either made without the required state licenses or exceed state usury caps. As a result, these loans are considered void and uncollectable. Despite this, the company has allegedly threatened consumers with negative credit reporting, even though it has never actually furnished such information to credit reporting agencies.

Lastly, the CFPB claims that the company developed its own credit scoring method for potential borrowers, effectively acting as a credit reporting company. However, the company has allegedly failed to take adequate measures to ensure the accuracy of the data it collects on consumers.

The CFPB's lawsuit seeks to hold the fintech company accountable for its alleged deceptive and abusive practices, as well as its violations of consumer protection laws.

Our Opinion:

The CFPB's lawsuit against this company is justified and serves as a wake-up call for the entire alternative finance industry. Alternative Lenders must prioritize transparency, fairness, and responsible lending practices to maintain the trust of our customers and regulators. Failure to do so will only lead to increased scrutiny and potential legal action, ultimately harming the industry as a whole.

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