Colorado has reached a settlement in lawsuits with online lenders and their partner banks relating to the state's right to enforce interest rate limits.
Under the settlement, the two lenders - Avant and Marlette Funding - can qualify for safe harbour in Colorado if, among other things, they do not offer loans with annual percentage rates of more than 36%.
The Colorado Attorney General first field suits against the lenders in 2017, accusing them of violating the state's Uniform Consumer Credit Code with their interest rates.
Under federal law, certain out-of-state banks can lend in Colorado at interest rates that exceed the state's limits. The Attorney General alleged that Avant and Marlette illegally partnered with two out-of-state banks — WebBank and Cross River Bank - in a scheme to “rent” those banks’ ability to lend above Colorado’s rate limits.
Under the settlement, WebBank, Cross River Bank, and their non-bank partners have agreed to provide Colorado consumers with protections to ensure that they are making true banks loans. They have also committed to the 36% rate cap and will provide consumers with other protections required by Colorado law. In addition, non-bank partners will maintain a Colorado lending license.
The companies will also pay $1,050,000 to the State of Colorado for consumer protection efforts as well as make a $500,000 contribution to the local MoneyWi$er financial literacy education programme.
Attorney General Phil Weiser says: "Many Coloradans are hurting financially due to the economic impact of the Covid-19 pandemic and they are susceptible to unscrupulous lenders who take advantage of them, lending at rates far above what Colorado law permits. This agreement protects Colorado consumers and creates a model for how other lenders can comply with Colorado law and treat consumers fairly."
James Paris, CEO, Avant, adds: "Our team worked closely with the Colorado Attorney General and his team to create a safe harbour that defines responsible partnerships between banks and fintechs and, ultimately, resolves the 'true lender' issue in a manner that creates certainty for everyone. This is a pivotal moment in lending for consumers and for the industry at large."