On December 8, the Oregon Department of Consumer and Business Services entered into a consent order with two affiliated companies resolving allegations of violations of the Oregon Consumer Finance Act arising from a bank partnership program. According to the regulator, the companies allegedly charged, contracted for, or received interest above Oregon’s statutory limits on hundreds of consumer loans made to Oregon residents, even though the loans were originated and funded by an out-of-state, state-chartered bank.
Key allegations and findings in the consent order include:
- Alleged excessive interest charges. The DCBS alleged that at least 806 consumer loans of $50,000 or less carried interest rates exceeding Oregon’s statutory cap, resulting in approximately $1.4 million in interest allegedly collected above permissible limits.
- Application of Oregon law to a bank partnership model. Although the loans were originated by an out-of-state bank, the DCBS alleged that the nonbank entities acted as brokers, facilitators, and service providers and were therefore subject to Oregon’s licensing and rate-cap requirements.
- Unlicensed participation interests. One affiliated company allegedly purchased a substantial majority economic interest in the loans without holding an Oregon consumer finance license, which the DCBS asserted prohibited the collection or retention of interest, fees, or charges in connection with the loans.
- Prohibited loan agreement provisions. The regulator alleged that the loan agreements included impermissible terms, including attorney fee provisions applicable to salaried in-house counsel, broad hold harmless clauses, and powers of attorney extending beyond the limited statutory exception for vehicle title transfers.
Under the consent order, the companies agreed to $900,000 in pro rata borrower restitution and $660,000 in civil penalties. The civil penalty is suspended for three years and will be waived if the companies comply with all terms of the order. Those terms include amending or voiding prohibited loan provisions, ceasing the collection of charges above Oregon’s interest rate limits on outstanding loans, and implementing a Division-approved redress plan for affected borrowers.
Putting It Into Practice: We have previously discussed the spread of true lender laws and anti-evasion statutes, as well as actions by state regulators to use novel UDAAP theories to stop bank partnership models. Here, the program was also the target of an action by the California DFPI. This case highlights how aggressive regulators have been in attacking these arrangements, and underscores the importance of bank-fintech partners monitoring their marketing and lending practices to ensure compliance with applicable state laws.