The Consumer Financial Protection Bureau (CFPB) is intensifying its scrutiny of SoLo Funds, a lending startup backed by tennis star Serena Williams. The CFPB has introduced a proposed rule that would restrict the way SoLo charges its customers.
This action follows a lawsuit filed by the regulator earlier this year, alleging deceptive lending practices by SoLo Funds. The startup, which provides peer-to-peer lending through a pay-what-you-like model, has been accused of misleading borrowers with its advertising claims of “zero-interest loans or 0% APR.” The CFPB’s proposed rule aims to ensure transparency and fair pricing in the lending market.
SoLo Funds, founded in 2018 by Rodney Williams and Travis Holoway, offers individuals access to capital through its peer-to-peer lending platform. Unlike traditional lenders, SoLo allows borrowers to set their own fees, known as “tips,” when they borrow through the website. However, according to the Financial Times, the CFPB alleges that these tips often exceed federal or state caps on what lenders can charge, resulting in borrowers paying fees that far exceed existing limits.
The CFPB’s proposed rule targets the tipping model used by SoLo Funds and other FinTech companies. It requires lenders to price their loans in terms of annual interest rates rather than flat fees. Additionally, the rule mandates that fees charged by SoLo and similar platforms must not exceed federal or state caps. The CFPB aims to promote fair competition and prevent the exploitation of borrowers through excessive fees.
PYMNTS reported in May that SoLo Funds expressed surprise and disappointment at the CFPB’s lawsuit, stating that the company has been working with the regulator for the past 18 months to establish a regulatory framework. CEO and Co-founder Travis Holoway emphasized that SoLo has diligently followed the rules and sought collaboration with regulators. The startup believes its model provides affordable access to credit for Americans and is in compliance with federal and state lending laws.
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