In the wake of rulings upholding federal regulators’ “valid when made” rules, a new lawsuit serves as a reminder that state regulators and class-action plaintiffs’ lawyers may continue to challenge the bank partnership lending model under the “true lender” doctrine.

In early March, the fintech OppFi filed suit to stop California’s banking commissioner from enforcing the state’s interest rate caps on loans made in partnership with FinWise Bank.  See Opportunity Fin., LLC v. Hewlett, No. 22STCV08163 (Cal. Super. Ct. Mar. 7, 2022).  According to the complaint, the state regulator threatened enforcement on the grounds that OppFi—and not FinWise Bank—is the supposed “true lender” for purposes of assessing the validity of the loans’ interest rates.  The interest rates on the loans, if made by OppFi, would exceed California’s interest rate caps, including under California’s Fair Access to Credit Act (also known as AB 539), which took effect in January 2020.

OppFi is seeking a declaration that California’s interest rate caps do not apply to the loans made in partnership with FinWise Bank “because OppFi is not making the loans—the Bank is.”  OppFi alleges that FinWise Bank is the lender because it is the entity that “extended credit, entered into contracts with the borrowers for repayment, and remains the title owner of the loans.”  OppFi argues that this has two primary implications.  First, loans made by state-chartered banks like FinWise Bank are statutorily exempt from California’s interest rate caps.  Relying on a favorable decision that Covington obtained for Navient Solutions, a California federal judge recently dismissed claims against OppFi on this same basis, as OppFi alleges.  Sims v. Opportunity Fin., LLC, 2021 WL 1391565, at *4 (N.D. Cal. Apr. 13, 2021).  Second, section 27 of the Federal Deposit Insurance Act permits FinWise Bank to make loans at the rate of interest allowed in its home state of Utah (where there is no interest rate cap), and preempts California’s contrary laws.

According to OppFi, the California banking commissioner is attempting to “wage a war” against fintechs that partner with banks.  OppFi said in a press release that the company filed suit “so it can continue to serve close to 7.2 million Californians in need of credit.”  The commissioner, who declined to comment directly on the lawsuit, said in a statement, “Companies doing business in California that do not comply with the law will be investigated and may be subject to enforcement action to ensure consumer protection and compliance with state law.”

The state regulator’s challenge is part of a continuing trend (as reported here), whereby attacks on bank partnerships have started to abandon Madden arguments in favor of arguments that the nonbank partner is the “true lender.”

Photo of Ashley Simonsen Ashley Simonsen

Ashley Simonsen is a litigator whose practice focuses on defending complex class actions in state and federal courts across the country, with substantive experience in the three hotbeds of class action litigation: New York, San Francisco, and Los Angeles.

Ashley represents clients in…

Ashley Simonsen is a litigator whose practice focuses on defending complex class actions in state and federal courts across the country, with substantive experience in the three hotbeds of class action litigation: New York, San Francisco, and Los Angeles.

Ashley represents clients in the technology, consumer brands, financial services, and sports industries through all stages of litigation, including trial, with a strong track record of success on early dispositive motions. Her practice encompasses advertising, antitrust, product defect, and consumer protection matters. Ashley regularly advises companies on arbitration clauses in consumer agreements and related issues, including mass arbitration risks and issues arising under McGill v. Citibank, N.A. And she is one of the nation’s leading experts on “true lender” issues and the related “valid when made” doctrine.

Photo of Andrew Soukup Andrew Soukup

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which…

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which were defeated through dispositive pre-trial motions.
Andrew is co-chair of the firm’s Class Action Litigation practice group.

Andrew has helped his clients achieve successful outcomes at all stages of litigation, including through trial and appeal. He has helped his clients prevail in litigation against putative class representatives, government agencies, and commercial entities. Representative victories include:

  • Delivered wins in multiple nationwide class actions on behalf of large financial companies related to fees, disclosures, and other banking practices, including the successful defense of numerous lenders accused of violating the Paycheck Protection Program’s implementing laws, which contributed to Covington’s recent recognition as a “Class Action Group Of The Year.”
  • Successfully defending several of the nation’s leading financial institutions in a wide variety of litigation and arbitration proceedings involving alleged violations of RICO, FCRA, TILA, TCPA, FCBA, ECOA, EFTA, FACTA, and state consumer protection and unfair and deceptive acts or practices statutes, as well as claims involving breach of contract, fraud, unjust enrichment, and other torts.
  • Successfully defended several of the nation’s leading companies and brands from claims that they deceptively marketed their products, including claims brought under state consumer protection and unfair deceptive acts or practices statutes.
  • Obtained favorable outcomes for numerous clients in commercial disputes raising contract, fraud, and other business tort claims.

Because many of Andrew’s clients are subject to extensive federal regulation and oversight, Andrew has significant experience successfully invoking federal preemption to defeat litigation.

Andrew also advises clients on their arbitration agreements. He has successfully helped numerous clients avoid multi-district class-action litigation by successfully enforcing the institutions’ arbitration agreements.

Clients praise Andrew for his personal attention to their matters, his responsiveness, and his creative strategies. Based on his “big wins in his class action practice,” Law360 named Mr. Soukup a “Class Action Rising Star.

Prior to practicing law, Andrew worked as a journalist.

Photo of Matthew Verdin Matthew Verdin

Matthew Verdin specializes in defending class actions and complex commercial disputes. He has significant experience representing clients in the financial services and technology industries, achieving favorable outcomes in litigation involving consumer protection, trademark, and privacy claims.