PYMNTS MonitorEdge May 2024

SoLo Funds ‘Blindsided’ by CFPB Lawsuit

The Consumer Financial Protection Bureau sued SoLo Funds, alleging that the online lending platform used “digital dark patterns” to illegally collect fees from borrowers.

The lawsuit also alleged that SoLo Funds misrepresented the cost of loans, made false threats, collected money consumers didn’t owe, and created a credit scoring model with no safeguards, the agency said in a Friday (May 17) press release.

Reached for comment by PYMNTS, SoLo Funds provided an emailed statement from CEO and Co-founder Travis Holoway saying that the company has been working with the CFPB and was “blindsided” by the lawsuit.

“As a new model, SoLo has diligently followed the rules, engaging with leading legal counsel and approaching regulators requesting collaboration since its inception,” Holoway said in the statement. “SoLo Funds has been voluntarily working with the CFPB for the last 18 months, attempting to work toward a regulatory framework that maintains its affordability for Americans. We had primarily agreed on a path forward last night, and unbeknownst to us, we were blindsided this morning with a suit.”

SoLo Funds was founded in 2018 to provide a mobile peer-to-peer marketplace in which Americans grappling with cash shortages can help build long-term creditworthiness, Holoway told PYMNTS in a 2021 interview.

The CFPB said in its press release that SoLo Funds marketed “no-interest loans” but that nearly all borrowers paid “tips” to the lenders, “donations” to the company, or both.

The agency also alleged that SoLo Funds required consumers to select a “donation” option to move forward with the loan process, obscured a “No Donation” option, and did not inform consumers that no “donation” was required.

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

The lawsuit also alleged that SoLo Funds serviced and collected on loans that were void because they were made without a required license or in excess of state usury caps; threatened consumers that it would provide negative information to credit reporting companies, even though it has never reported any information to those companies; and acted as a credit reporting company without taking adequate steps to ensure its data was accurate.

With its suit, the CFPB aims to stop the alleged unlawful conduct, get redress for consumers who were harmed, and impose a civil money penalty, per the release.