Troutman Pepper

[co-author: Stephanie Kozol]

On May 10, SoLo Funds, Inc. (Solo), one of the largest community lending platforms in the United States, entered into a settlement with the District of Columbia attorney general (OAG). The settlement resolves claims that the company’s lending practices violated D.C. usury law and constituted unfair, deceptive, and/or abusive acts under the D.C. Consumer Protection Procedures Act.

According to the OAG, SoLo represented itself as a community lending platform that facilitates loans by connecting consumer borrowers with lenders. Its website allegedly advertised interest-free and flexible loans, and it allowed borrowers to set a desired loan amount, payback date, and “appreciation tip” for lenders. The company also allegedly solicited a “platform tip,” which it required lenders to advance on the borrowers’ behalf regardless of whether the loan was ever repaid. Then, to attract lenders to the platform, the company allegedly advertised loan-making as a way to earn a return on capital. According to the OAG, however, SoLo failed to disclose that most loans were never repaid.

Based on these practices, the OAG argued that by soliciting tips, the company facilitated loans with APRs that exceeded 500% in violation of D.C. usury law. The OAG also alleged that by failing to disclose that most borrowers either failed to repay their loans on time or at all, the company engaged in a deceptive practice in violation of the D.C. Consumer Protection Procedures Act.

Under the settlement, the OAG secured injunctive relief, restitution, and a financial penalty. Specifically, SoLo is required to (1) prevent lenders from seeing the existence or the amount of a tip on a loan; (2) ensure that withholding a tip does not impact loan approval or loan terms; (3) clearly disclose that tips are optional, and inclusion of a tip will not impact the ability to borrow; (4) provide honest disclosures about how much a lender can expect to earn; and (5) pay $30,000 to district borrowers for tips and donations they paid.

Why It Matters

The company’s settlement with the OAG has come on the heels of several other regulatory matters. On May 17, SoLo announced that it had resolved a cease-and-desist order issued by the Connecticut Department of Banking in May 2022. Similarly, on May 9, SoLo announced an agreement with the California Department of Financial Protection and Innovation that permitted it to continue loan-making in the state. State AGs remain focused on protecting people using consumer financial products.