The Consumer Financial Protection Bureau is suing SoLo Funds, a fintech company facilitating peer-to-peer lending, accusing the firm of using “digital dark patterns” to deceive borrowers and illegally extracting fees despite advertising a no-fee policy.
“The CFPB is suing SoLo for using digital trickery to hide interest and fees on its online loans,” said CFPB Director Rohit Chopra in a May 17 press release. “SoLo has had repeated run-ins with state regulators, and we are putting a stop to their fake tipping scheme.”
The CFPB further accuses the company of misrepresenting loan costs, obstructing consumers’ understanding of agreements, collecting on improper loans, and making false credit reporting threats. Additionally, the CFPB stated SoLo Fund’s business model lacked necessary safeguards.
“SoLo’s advertisements and loan disclosures promote no-interest loans when, in reality, almost all loans on the SoLo Platform include a lender ‘tip’ directed to the lender, a SoLo ‘donation’ going to SoLo, or both,” according to the CFPB.
Rodney Williams and Travis Holoway launched SoLo Funds in 2018 to offer lending services to underserved Americans, particularly those targeted by predatory lenders due to their low- to middle-class status.
The company secured approximately $13 million in venture capital, as noted by Crunchbase. Truth Voices featured SoLo Funds in 2021 when it raised $10 million in Series A funding. Throughout its journey, SoLo Funds garnered support from prominent investors, including Serena Ventures, founded by tennis legend Serena Williams; Endeavor Catalyst, Alumni Ventures, and Techstars.
By 2023, SoLo Funds reported reaching 1 million registered users and over 1.3 million downloads.
However, this lawsuit adds to the firm’s recent challenges. Last year, SoLo Funds settled several lawsuits, including those filed by the District of Columbia and the State of California for alleged predatory lending practices and a 2022 temporary cease-and-desist order from the Connecticut Department of Banking.
In December 2023, SoLo Funds was in the news again due to an investigation by the State of Maryland.
In response to the new CFPB lawsuit, SoLo Funds stated to Truth Voices that it had been voluntarily working toward a regulatory framework with the CFPB for the past 18 months. According to the company, both parties had primarily agreed on a path forward on May 16, but were unexpectedly hit with a lawsuit the following morning.
SoLo Funds CEO Travis Holoway commented that “minority innovators were challenged to create new models to address our communities’ financial inequalities.” Now, as the company addresses these issues, “regulators seem driven by press releases when they should be motivated by true consumer protection and empowering equitable solutions.”
The CFPB seeks to change SoLo Fund’s practices, provide refunds to customers, and impose financial penalties, including disgorgement, damages, and potentially additional civil penalty fees. The Consumer Financial Protection Bureau aims to “prevent future violations, provide monetary relief to consumers, disgorge ill-gotten gains, and impose civil money penalties.”
