MD Financial Regulation agrees with banking and fintech partners

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 January 2021 office of the OFR Letter, the agency alleged that the bank and its fintech partners violated Maryland law by not having a lending, debt collection and credit repair license. According to the OFR, the bank offered in-store retail credit financing and store-brand credit cards to Maryland consumers.

Although consumers applied for credit directly from the bank and it had sole underwriting authority, the OFR said it was operating in the state without a Maryland lending license. The fintech partners processed credit applications and managed accounts, but also engaged in unlicensed debt repair and collection activities, according to the OFR. According to the OFR, because the loans had been made without a licence, they were void and uncollectible.

Under the settlement agreement, the OFR agreed to withdraw its administrative action. In exchange, fintech partners agree not to engage in credit repair activities and to obtain a debt collection license to engage in collection activities. The OFR’s charges against the bank for unlicensed lending have been dropped, although the bank will be required to explicitly display its name and contact information in all credit-related advertising and communications to Maryland consumers. Finally, fintech partners will also be obligated to pay the OFR an investigative fee of $50,000 and an administrative fee of $225,000.

Putting it into practice: This case originated from a consumer complaint regarding a usurious rate on credit cards. The OFR found the bank’s interest rates to be “appropriate and legal”. However, the complaint opened a broader investigation. Although resolved without a substantial civil penalty, OFR’s action demonstrates that participants in bank-fintech partnerships continue to face state licensing threats. We have already discussed the spread of real lender laws AND anti-evasion rulesas well as actions by state regulators to use new UDAAP theories stop banking partnership models. This case highlights how aggressive regulators are attacking these arrangements and highlights the importance of bank-fintech partners monitoring their lending and other practices to ensure compliance with applicable state laws.

Listen to this post

Gloria Grand-Pierre, a summer associate in the firm’s Chicago office, also contributed to this article.

Source