A California judge has sided with lending fintech OppFi in its case against California’s financial regulator, which since 2022 has sought to shut down OppFi’s lending program and fine the fintech for allegedly illegal interest rates.
Judge Gary Roberts of the Superior Court of Los Angeles County ruled last week that OppFi sufficiently demonstrated that its banking partner, Utah-based FinWise Bank, was the true lender of OppLoans, which are short-term loans that borrowers with poor credit can access through OppFi’s platform.
California’s Department of Financial Protection and Innovation, under then-Commissioner Clothilde Hewlett in 2022, sought to apply the California Financing Law to OppLoans. The law had been amended in 2020 to cap interest at 36% for small loans. But the DFPI alleged OppLoans offered rates of up to 160%.
The DFPI alleged that though these caps do not technically apply to out-of-state banks like FinWise, the relationship between the bank and OppFi is a “rent-a-bank ruse” designed to permit OppFi “to circumvent interest rate limits,” and that OppFi was the “true lender” of OppLoans.
OppFi argued that FinWise was the true lender, as the bank controls the application and underwriting process, funds and retains ownership of the loans, bears substantial risk of loss, independently reviews and approves all consumer-facing marketing of OppLoans, and audits OppFi and its loan program.
Roberts sided with OppFi on May 19, writing that the DFPI “has not sufficiently shown an issue of fact as to whether OppFi and FinWise's relationship is a mere sham and subterfuge to cover up a usurious transaction.”
OppFi, on the other hand, “has sufficiently demonstrated that there exists no issue of fact that ‘FinWise is not merely a dummy lender and its relationship with OppFi is not a mere sham,’” he wrote.
An OppFi spokesperson said the company is “pleased with the result and looks forward to proceeding accordingly.” A DFPI spokesperson declined to comment.
Roberts’ decision is “one of the most significant judicial validations of the bank-fintech partnership model to date,” a spokesperson from the law firm Orrick, which represented OppFi in its case against the DFPI, said in an emailed statement to Banking Dive.
“It squarely rejects the DFPI's effort to apply a ‘true lender doctrine’ to recharacterize a bank as a mere ‘straw lender’ and effectively dismantle the federal interest rate exportation framework” established under the Federal Deposit Insurance Act, the Orrick spokesperson said.
OppFi, for its part, appears to be moving away from the fintech-bank partnership model by buying a bank of its own. The fintech last month announced plans to buy Arizona-based BNCCORP and its subsidiary BNC National Bank for $130 million. The transaction is expected to close in the fourth quarter.
