CFPB sues online lender SoLo Funds for deceiving borrowers

The CFPB alleges that SoLo markets itself as a consumer-friendly alternative to high-cost, short-term loans. Despite advertising zero-interest loans or 0% APR loans, SoLo’s use of dark patterns ensures that almost every borrower pays a fee, in the form of a “tip” or “donation.” The CFPB is seeking, among other things, injunctions against SoLo to prevent future violations, monetary relief for borrowers, forfeiture of ill-gotten gains, and a civil money penalty.

“The CFPB is suing SoLo for using digital trickery to hide interest and fees on its online loans,” said CFPB Director Rohit Chopra. “SoLo has had repeated run-ins with state regulators, and we are putting a stop to their fake tipping scheme.”

SoLo Funds is a nonbank financial technology company headquartered in Los Angeles. Since at least 2018, SoLo has operated a digital lending platform through which consumers can obtain short-term loans. The maximum SoLo loan amount is $575, and the minimum is $20. SoLo brokers loans between consumer borrowers and investors. SoLo requests consumers pay fees to lenders and to SoLo, which the company refers to as “tips” and “donations,” respectively. SoLo services and collects on loans brokered through its platform.

SoLo uses a proprietary credit scoring tool to determine a consumer’s credit score - commonly referred to by the company as a “social score.” To compose the social score, SoLo relies on third parties to, among other things, scrape personal and financial information from borrowers’ mobile phones, social media, and bank accounts.

While SoLo claims fees paid to lenders and the company are voluntary, the CFPB alleges that is not the case. When consumers reach the part of the application that asks them to pay a fee to SoLo, consumers only see options for what percentage to give—none of the options is zero. SoLo also informs prospective lenders of the fee they will receive from a consumer to fund a loan. The result is that consumers who do not pay a fee to lenders are unlikely to get their loans funded. In fact, as of December 31, 2022, only 0.5% of funded loans did not include a fee paid to the lender by the borrower.

From approximately March 2018 through December 2022, borrowers took out more than 540,000 loans on SoLo’s platform in nearly all fifty states. In that time, SoLo received more than $8 million in “donations” and lenders received almost $13 million in “tips” through the SoLo platform. As of May 2024, SoLo represents on its website that its platform has brokered more than 1 million loans.
State Enforcement Actions

SoLo has been the subject of law enforcement actions across the country. Many of the cases relate to SoLo’s deceptive advertising and its practice of masking fees as “tips” and “donations.”

In May 2023, California
resolved its claims against SoLo that the company used misleading disclosures and advertising, as well as failed to obtain a required state license. Also in May 2023, the District of Columbia Attorney General filed a complaint and consent order concerning SoLo’s usury limit violations and actions to deceive consumers. Connecticut

also recently settled its claims against SoLo, which required the company to, among other things, refund to consumers all tips, donations, late fees, administrative fees, transaction fees, and recovery fees.
SoLo’s Illegal Activities Alleged by the CFPB

The CFPB alleges that SoLo has violated the Consumer Financial Protection Act and the Fair Credit Reporting Act. The company deceives borrowers about the cost of credit, uses dark patterns to trick borrowers, services and collects on loans that are void and uncollectible, and does not have procedures to assure the maximum possible accuracy of its consumer reports. Specifically, the CFPB alleges that the company harms consumers by:

Misrepresenting the cost of loans: While SoLo’s advertisements and loan disclosures market no-interest loans, virtually all borrowers pay “tips” to the investor lenders, “donations” to SoLo, or both. These fees result in a high total cost of credit. Almost all of SoLo’s loans carry an equivalent annual percentage rate of over 36% APR, and many loans carry an APR in excess of 300%, with some over 1,000%.
Using digital dark patterns to trick borrowers: SoLo presents three default options to consumers for the “donation,” and it requires consumers to select one before moving forward with the loan process. SoLo does not inform consumers that a “donation” is not required, and it obscures a “No Donation” option by placing it in a settings section of the mobile application that is not part of the loan application flow.
Making false threats and collecting money consumers do not owe: SoLo services and collects on loans that are void and uncollectible because they were either made without a required state license or in excess of state usury caps in the state where the borrower resides. When collecting on debt, SoLo has threatened consumers that it will furnish negative information to credit reporting companies even though SoLo has never reported any information to credit reporting companies.
Creating a “social credit” score without safeguards: By using its own credit scoring method for potential borrowers, SoLo acts as a credit reporting company. However, SoLo has not taken adequate steps to make sure the data the company gathers on consumers is accurate.

Enforcement Action

Under the Consumer Financial Protection Act, the CFPB has the authority to take action against financial institutions violating consumer financial protection laws, including the Fair Credit Reporting Act and for engaging in unfair, deceptive, or abusive acts or practices. The CFPB’s lawsuit against SoLo seeks a stop to alleged unlawful conduct, forfeiture of ill-gotten gains, redress payments to harmed consumers, and imposition of a civil money penalty, which will be deposited in the CFPB’s victims relief fund.