Subprime lender Elevate to pay over $3.75 million to end DC interest rate lawsuit

Diving brief:

  • Subprime consumer lender Elevate has agreed to pay at least $3.3 million in compensation to more than 2,500 Washington, D.C. residents as part of a settlement announced Tuesday after the DC attorney general sued the company, claiming it was charging interest at an annual percentage rate (APR) well above the district’s 24% cap.
  • The lender also agreed to waive more than $300,000 in overdue interest charges owed by DC-based customers and will pay the district a $450,000 penalty.
  • “While we don’t agree with this lawsuit and believe that residents of the district deserve more – not less – access to credit, we have agreed to a settlement … in order to move forward. forward and to maintain our goal of facilitating access to responsible credit options for those in need,” a spokesperson for the lender said. American banker. The spokesperson said Elevate has complied with all financial regulations.

Overview of the dive:

The DC Attorney General’s Office sued Elevate in 2020 over two of the company’s offerings: Rise, an installment loan product with an APR of between 99% and 149%, and Elastic, a line of credit whose APR , according to the Attorney General, is not disclosed by Elevate. The GA puts the figure between 129% and 251%.

These two loan products were announced on Friday by a coalition of 15 consumer advocacy groups urging the new management of the Federal Deposit Insurance Corp. (FDIC) to crack down on what it sees as predatory lending.

Consumer advocates have also named six “rogue banks” that allow lending through partnerships with fintechs. The groups tie three of those banks — Republic Bank, FinWise and Capital Community Bank — to the Elevate products cited in the DC lawsuit. FinWise and Capital are licensed in Utah; Republic, Kentucky. Critics of these deals allege that fintechs are using chartered banks in states with relatively lax restrictions on interest rates to circumvent caps in other states.

The debate over whether a fintech or its partner bank is the “true lender” has fueled much debate in recent years. The Office of the Comptroller of the Currency (OCC) sought to clarify the concept in 2020, ruling that a bank is the true lender on loans made in partnership with fintechs if, on the original date, it finances the loan or the lender is named in the loan contract. Additionally, if one bank is named as the lender in the loan agreement and another bank funds the loan, the former is the true lender, the OCC said.

Last year, the Senate and House voted to strike down the OCC rule under a Congressional Review Act (CRA) resolution. President Joe Biden approved this change in June.

DC Attorney General Karl Racine said Tuesday that Elevate was the true lender in his case. “Consumers in the district should be wary of any lender, including so-called fintech companies, that promises easy money without any financial consequences,” he said in a statement. “The truth is often buried in the fine print. Interest rates like those involved in this settlement often exceed 100% and have a devastating impact on people who need an honest and legal loan.”

Elevate agreed not to advertise loans with APRs over 24% to DC consumers as part of Tuesday’s settlement. He also said he would work with the credit bureaus to remove negative credit information associated with a loan or line of credit that appears on DC consumer credit reports.

This is not the first settlement facilitated by Racine in recent months. In December, loan manager OppFi agreed to pay $1.5 million in restitution to more than 4,000 DC residents to end a similar lawsuit alleging the company breached the interest rate cap. of the district.

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