A California court has handed bank-FinTech partnerships one of their most significant legal victories to date.
On May 19, Los Angeles County Superior Court Judge Gary D. Roberts ruled in favor of OppFi in its dispute with California’s Department of Financial Protection and Innovation (DFPI), finding that FinWise Bank was the lender in the program at issue. The decision allows the lending program to continue operating without being subject to California’s 36% interest-rate cap.
The ruling may not settle the industry’s long-running true-lender debate, but it makes headway in clarifying what courts may consider when evaluating modern bank-FinTech arrangements. At the same time, it leaves unresolved, too, the broader economic-substance arguments regulators and consumer advocates have advanced.
The 30-Second Read
The court ruled that FinWise Bank, not OppFi, was the lender in the lending program challenged by California regulators.
Judge Roberts found that FinWise controlled underwriting and approvals, funded loans with its own money, retained title to the loans, exercised compliance oversight and maintained exposure to credit risk. Those facts were sufficient for the court to conclude that FinWise was not acting as a sham or placeholder lender.
“FinWise is not merely a dummy lender and its relationship with OppFi is not a mere sham,” Roberts wrote in the statement of decision.
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The decision also reinforced the longstanding valid-when-made principle, holding that the later sale of receivables does not retroactively render a loan unlawful.
By the Numbers
36% — California’s rate cap under the Fair Access to Credit Act (AB 539).
95%-98% — The share of receivables OppFi affiliates typically acquire after origination, a central element of the DFPI’s argument.
$100 million+ — The penalties California regulators sought in the litigation.
$130 million — The price OppFi agreed to pay for BNCCORP and BNC National Bank.
What the Court Actually Decided
Rather than deciding whether economic ownership determines true-lender status, Roberts focused on whether FinWise was a “mere dummy” lender. He concluded it was not.
The court pointed to several factors:
- FinWise controlled underwriting and loan approvals.
- FinWise funded loans using its own capital.
- FinWise retained title to the loans.
- FinWise maintained compliance oversight.
- FinWise bore meaningful risk of loss.
The court also rejected the argument that OppFi’s purchase of receivables transformed the loans into unlawful products after origination.
Instead, Roberts relied on longstanding California precedent holding that “a contract, not usurious in its inception, does not become usurious by subsequent events.”
Notably absent from the ruling was a detailed analysis of the predominant-economic-interest theory that has become the focal point of regulatory challenges to bank-partnership lending models.
The Regulator’s Argument
The DFPI argued that OppFi functioned as the true lender because it performed key lending-related activities and ultimately captured most of the economics through its acquisition of receivables.
The state characterized the arrangement as a “rent-a-bank” structure and a “predatory” effort to evade California’s rate-cap law.
According to the DFPI, FinWise appeared as the lender on paper while OppFi controlled much of the practical operation and financial outcome of the lending program.
The Academic Argument
Critics including George Washington University law professor emeritus Arthur Wilmarth have argued that courts should focus on economic substance rather than lending formalities.
Their position is that if a FinTech acquires 95% to 98% of the receivables and captures most of the economic upside and downside, that fact should weigh heavily in determining who the true lender is.
The Consumer Argument
Consumer advocates including the Center for Responsible Lending and the National Consumer Law Center have argued that loans carrying APRs approaching or exceeding 100% are precisely the type of products California’s rate-cap framework was designed to address.
Winners and Losers
| PARTY |
WHERE THEY STAND |
| FinTech lenders |
Short-term winners. A properly structured bank-partnership model survived a significant true-lender challenge. |
| Sponsor banks |
Validated, but only if they maintain genuine control over underwriting, funding, compliance and risk management. |
| State regulators |
Lost this round but preserved broader economic-interest arguments that could be raised in future litigation or on appeal.
|
| Consumers |
No immediate relief. The loans remain in place and the policy debate continues. |
What It Means for the Industry
For FinTech lenders, the ruling removes one source of uncertainty while leaving another intact.
The court placed substantial weight on traditional lending functions, including underwriting authority, funding responsibility, compliance oversight and retained risk. Those findings are likely to be closely studied by participants across the bank-partnership ecosystem.
Fredrick Levin, a partner at Orrick and counsel for OppFi, told PYMNTS Wednesday that “the detailed factual analysis of the evidentiary record provides useful insight into facts that validate the bank-FinTech partnership.”
For banks, the decision reinforces the importance of demonstrating meaningful involvement in lending programs rather than serving as passive charter providers.
For regulators, the ruling may increase focus on economic-interest arguments rather than operational-control arguments in future cases. Levin contended that “the import of the court’s ruling is to call into question the legal tenability of the predominant economic interest test as a permissible factor in true lender analysis.”
If It Gets Appealed: Three Scenarios
Affirmed on Narrow Grounds. An appellate court could agree that FinWise was not a sham lender without addressing broader true-lender theories. That would strengthen the immediate outcome while leaving larger questions unresolved.
Affirmed on Broader Grounds. An appellate court could go further and address the predominant-economic-interest theory directly, potentially providing additional clarity for the industry.
Reversed. An appellate court could determine that economic ownership deserves greater weight in the analysis. Such an outcome would have implications well beyond OppFi, particularly for programs where FinTechs acquire most receivables shortly after origination.
The asymmetry is notable. The upside of an affirmance is incremental certainty. The downside of a reversal could require significant changes to partnership structures across the sector.
Does This Slow the Charter Rush?
Probably not.
Weeks before securing its legal victory, OppFi agreed to acquire BNCCORP and BNC National Bank for approximately $130 million.
The company that just won perhaps the most important true-lender case in years is still moving to own a bank.
That may be the clearest signal that industry participants view the ruling as an important victory, but not necessarily the final word.
Watch List
- Whether the DFPI appeals and presses the predominant-economic-interest theory more aggressively.
- Similar true-lender cases in other states that could produce conflicting outcomes.
- Potential federal scrutiny of bank-FinTech lending structures.
- How banks adjust documentation around underwriting authority, risk retention and compliance oversight following the decision.
