On May 16, the Maryland Office of Financial Regulation ("OFR") announced a settlement with a Missouri-based bank and its fintech partners for engaging in unlicensed lending, credit repair, and debt collection activities.
In the OFR's January 2021 Charge Letter, the agency alleged that the bank and its fintech partners violated Maryland law by its failure to hold a lending, debt collection, and credit repair license. According to the OFR, the bank offered in-store retail credit financing as well as store-branded credit cards to Maryland consumers.
While the consumers applied for credit directly from the bank and it had sole underwriting authority, the OFR alleged it operated in the state without a Maryland lending license. The fintech partners processed credit applications and serviced the accounts, but also, according to the OFR, engaged in unlicensed credit repair and collections activities. According to the OFR, because the loans were made without a license, they were void and uncollectable.
Under the settlement agreement, the OFR has agreed to withdraw its administrative action. In return, the fintech partners agree not to engage in credit repair activities, and to secure a debt collection license in order to engage in collections activities. The OFR's allegations against the bank for unlicensed lending were dropped, though the bank will be required to explicitly display its name and contact information in all credit-related advertisements and communications targeting Maryland consumers. Finally, the fintech partners will also be obligated to pay the OFR a $50,000 investigative fee and a $225,000 administrative fee.
Putting It Into Practice: This case originated from a consumer complaint alleging a usurious credit card rate. The OFR found that the bank's interest rates were "proper and lawful." However, the complaint opened up a broader investigation. Though resolved without a large civil penalty, the OFR's action demonstrates that participants in bank-fintech partnerships continue to face state licensing threats. 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. This case highlights how aggressive regulators are attacking these arrangements, and underscores the importance of bank-fintech partners monitoring their lending and other practices to ensure compliance with applicable state laws.
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