California case could deal blow to high-interest online lenders in the US
California judge is poised to decide if an online lender offering small loans at over 150% interest violates state law, which would deal a blow to finance companies that critics argue have skirted rate caps to profit from cash-strapped borrowers.
The California Department of Financial Protection and Innovation (DFPI) is seeking a ruling that would block Chicago-based Opportunity Financial (OppFi) from offering loans with an interest rate above California's maximum of 36%.
Los Angeles Superior Court Judge Timothy Dillon is expected to rule any day. Legal experts say that if California wins, it could embolden other states to take action against lenders that make high-interest loans to low-income borrowers using what critics call «rent a bank» partnerships.
Critics say the partnerships allow some fintech lenders, which offer quick loans online, to get around the interest-rate caps most states impose on nonbanks by partnering with banks in states like Utah, where there is no interest rate cap.
The lenders themselves say the partnerships help smaller state banks compete and fill a void for borrowers with low credit scores who need emergency cash for unexpected expenses like car repairs and medical care.
According to a 2022 survey by the Federal Reserve, 37% of adults in the U.S.
