P2P Lending Platform SoLo Funds Responds to CFPB Lawsuit
In Community We Trust

P2P Lending Platform SoLo Funds Responds to CFPB Lawsuit

After being sued by the Consumer Financial Protection Bureau (CFPB), the FinTech SoLo Funds has now issued a response.

About the lawsuit and response:

Recently, the CFPB announced that it was suing SoLo Funds, accusing the company of misleading customers about the true costs of loans obtained through the platform. This stems from SoLo’s model, which allows prospective borrowers to offer a “tip” to lenders as well as provide a “donation” to SoLo for their services. According to the CFPB, while SoLo’s loan application does allow borrowers to select their “donation” to the platform, none of the options are 0% — despite the FinTech advertising 0% APR loans (users can turn on a “No Donation” option, but this is found in the app’s Settings menu). Moreover, in the case of tipping, the CFPB states that those who choose not to include a tip for borrowers are far less likely to have their loan fulfilled, with only 0.5% of funded loans offering no fee to lenders.

In response, SoLo Funds argues that this tipping fee structure has been employed by several other companies. Furthermore, they state that they’ve not only followed the rules but have also been working on a regulatory framework with the CFPB for 18 months and allege that they had “primarily agreed on a path forward” just one day before the lawsuit was filed. SoLo also says that its platform has helped save users $40 million in fees since its founding.

About SoLo Funds:

SoLo Funds is a peer-to-peer community finance service that helps facilitate short-term loans. On the platform, borrowers can request between $20 and $575 while stating what they hope to use the funds for. Then, lenders can choose which loans to fund. As part of this, lenders will see the borrower’s repayment history and a SoLo Score.

According to SoLo, the average tip given to lenders from borrowers is 10.4% while the average donation to the platform is 6.2%. With an average late fee of 0.4%, SoLo states that their average loan cost is 17%. The service also says it has a cap of 36%, while the lowest cost would be 0%.

What they’re saying:

Announcing the firm’s lawsuit, CFPB Director Rohit Chopra stated, “The CFPB is suing SoLo for using digital trickery to hide interest and fees on its online loans. SoLo has had repeated run-ins with state regulators, and we are putting a stop to their fake tipping scheme.”

However, in a statement, SoLo Funds CEO Travis Holoway said, “This lawsuit feels selective. Our political leaders challenged minority innovators to create new models to address our communities’ financial inequalities. That is precisely what we’ve created, but regulators have worked hard to stifle innovation and prevent underserved communities from accessing better financial products.”

Holoway continued, “It’s important to note that this call for innovation has stemmed from a long history of predatory practices and products that have disproportionately impacted low- to middle-class communities. Ironically enough, regulators have provided clear licensing frameworks for the products that harm consumers most today, such as subprime credit cards and payday loans. The stifling of innovation has the opposite effect; it increases costs and limits access to capital. Regulating by enforcement only perpetuates this inequity.”

My thoughts:

This is a complicated one. On the one hand, I definitely see the CFPB’s point that the 0% “donation” option should be part of the application and not hidden in Settings. Beyond that, though, I don’t think you can really blame SoLo for tip-less loan applications not getting fulfilled. While I understand that it’s disappointing to apply for a 0% loan only to find no one willing to fund it, the apparent 0.5% chance that someone will is still better than you’d find just about anywhere else IMO.

Therefore, my solution would be that SoLo make the 0% “donation” option easier to access, while also explaining to customers why such a donation is vital to the platform. Similarly, with the “tip,” SoLo can again make it clear that those submitted with a 0% tip are realistically less likely to be fulfilled. Perhaps these warnings are things the app already does, but I think they’d be helpful.

Personally, having just discovered SoLo Loans through this controversy, I’m now more interested in checking the platform out and will be keeping an eye on this CFPB situation as it develops.

Author

Kyle Burbank

Head Writer ~ Fioney
Kyle is the head writer for Fioney. He is a personal finance nerd, constantly looking for new apps and services to test and incorporate into his own financial game plan. In addition to his role at Fioney, he's written for other publications including Born2Invest, Lifehack, and Laughing Place, as well as his own site Money@30. He also creates personal finance and travel-related videos for Fioney's YouTube channel, which has garnered more than 2 million views. Currently, Kyle resides in Springfield, Missouri with his wife of 10 years. Together, they enjoy traveling (including visiting Disney Parks around the world), dining, and playing with their dog Rigby.

Other Articles by Kyle Burbank

Robinhood Tax Lots screenshot

Robinhood Introduces Tax Lots Feature for Selling Assets

Robinhood is adding a new feature that will give customers greater control when it comes time to sell their shares. About Tax Lots: Today, Robinhood announced the launch of Tax Lots. With this feature, traders will be able to better manage their tax liabilities by gaining control over how their shares are sold. Using Tax Lots, customers will have more options for selling assets. For example, if a user has 100...
Deloitte Black Friday spending chart

2024 Black Friday-Cyber Monday Spending Expected to Increase

According to figures from Deloitte, consumers are expected to spend a record amount during the Black Friday-Cyber Monday period this year. By the numbers: Between November 28th and December 2nd, Americans on averagewill spend an estimated $650. Not only is this a new record but marks a 15% increase over last year's $567 average spending figure. Over the past four years, spending has now increased 62%, with 2020's average coming...
real estate agent and a happy couple

Lessons From a First-Time Home Buyer: How the Pros We Worked With Are Still Helping Us

A few months ago, I wrote about how the professionals we choose to work with when buying our home made a huge difference and made our experience a positive one. Now, one year later, I'm somewhat surprised to say that they continue to help us out on a regular basis despite the transaction that first brought us together being well behind us. So, between that milestone and with it being...
The "Email" field is empty, you must enter some text to proceed.The text you entered in the "Email" field appears to be invalid, please edit it and try again
Get the Latest News Delivered to Your Inbox
Travelers with two Best Western Credit Cards

Best Western Debuts Two New Rewards Credit Cards

After pausing applications for their previous rewards card, the hotel chain Best Western has unveiled a new pair of rewards credit cards with a new issuer. About the Best Western cards: Best Western is partnering with First Bank & Trust and Mercury Financial to introduce two new co-branded credit cards. First up is the no-annual-fee Best Western Rewards Visa Signature Card. With this card, customers can 4x points on Best...
Marriott Bonvoy card and a woman on vacation

Marriott Bonvoy Bold Card Launches Travel Contest

Chase and Marriott Bonoy have unveiled a special contest while continuing to offer its best-ever welcome bonus. About the welcome bonus and Bold Chat Court Contest: Marriott Bonvoy and Chase have launched a special opportunity called the Bold Chat Court contest. As part of this contest, 10 lucky travelers will be awarded 500,000 Marriott Bonvoy points (for a total of 5 million) as well as $5,000. For this contest, the...
Bilt and All Reward logos

Bilt Adds 2 New Transfer Partners Including First 3:2 Transfer Rate

Bilt is once again expanding its travel transfer rewards program — and is even breaking the mold with one new partner. About the new additions to Bilt: This week, Bilt launched partnerships with two more travel brands: TAP Air Portugal and Accor. As a result, Bilt members will now be able to transfer their points to Miles&Go and ALL Reward, respectively. In total, Bilt now has 18 transfer partners including 13...
Fioney Top 10 Must-Read Personal Finance Articles Septemeber 2024

Top 10 Personal Finance Articles of the Month — September 2024

Welcome to Fioney's look at the top 10 personal finance articles of the month. On the first Friday of each new month, we look back at some of our favorite posts published in the weeks prior and highlight them right here. This includes a mix of sites that have become staples of our lists as well as many first-timers. To start things off this month, we'll look at some articles...

2024 SoFi Checking and Savings Review

Ever since I started taking an interest in the FinTech sector, one company whose name I’ve seen pop up over and over again is SoFi. Lately it seems as though that theme has been sent into overdrive as the company has not only become a household name thanks to its stadium naming rights deal but also because of the company’s continued product expansions. The most interesting development in my mind...