On May 17, 2024, the CFPB sued the online lending platform SoLo Funds for deceptive and illegal practices.According to the lawsuit, SoLo deceived borrowers about the total cost of loans and used digital dark patterns to trick borrowers into paying fees, among others.
SoLo Funds is a nonbank financial technology company that has operated a digital lending platform through which consumers can obtain short-term loans. 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.”
The CFPB alleges that SoLo has violated the Consumer Financial Protection Act and the Fair Credit Reporting Act by:
Misrepresenting the cost of loans. SoLo promotes no-interest loans, but most borrowers end up paying fees referred to as “tips” or “donations”, making the total cost high. The annual rates on SoLo loans often exceed 36%, and many go over 300%, with some surpassing 1,000%.
Using digital dark patterns to trick borrowers. SoLo offers three donation choices when applying for a loan, making it mandatory to pick one. The app hides the option to proceed without donating in a separate settings section, that is not within the loan application flow.
Making false threats and collecting money consumers do not owe. SoLo pursues loans that cannot be collected due to illegal practices, like lending without a license or exceeding interest rate limits. Despite never reporting to credit agencies, SoLo threatens borrowers with negative credit reporting.
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 needs to improve data accuracy.
Read the CFPB’s news release here.
The complaint can be found here.