June 14, 2023
Banking Commissioner Announces Settlement with SoLo Funds; Obtains Nearly $120,000 in Reimbursements for 543 Connecticut Consumers
HARTFORD — On May 16, 2023, the Connecticut Department of Banking reached a settlement with Solo Funds, Inc through a consent order agreed to by both parties. The order resolves allegations by the Department that SoLo Funds operated as a small loan company in the state without the proper license; engaged in deceptive practices and omitted or misrepresented material information to borrowers in connection with a small loan; and acted as a consumer collection agency without the proper license. Under the order, SoLo agreed to reimburse all Connecticut borrowers all amounts paid as fees to SoLo Funds or a third-party lender in connection with a loan originated on the SoLo Funds platform. As a result, SoLo Funds will reimburse 543 Connecticut borrowers on average approximately $220 each, totaling nearly $120,000. Typical loans ranged in size from $50 - $500, some with Annual Percentage Rates (APR) over 4000%. In addition, SoLo Funds must pay a civil penalty of $100,000.
“The Department has a long history of combatting high interest loans in the state – and this matter is no different” said Banking Commissioner, Jorge Perez. “ Renaming finance charges as ‘tips’ is in violation of law. We will continue to ensure that companies who use a tipping model in connection with loan offerings operate within the confines of the law.”
The Department launched an investigation of SoLo funds when it became aware of the company’s activity through its website and social media. As a result of its investigation, the Department issued a Temporary Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Other Legal and Equitable Relief, and Notice of Right to Hearing against SoLo Funds. In this notice the Department alleged, that SoLo Funds, through its website solofunds.com and its mobile platform, assisted Connecticut borrowers in receiving small loans without being licensed as a small loan company and violated Connecticut banking law by charging excessive interest rates.
SoLo operated its platform by facilitating loans between individual lenders and borrowers. The platform allowed borrowers to set the terms of the loans such as the principal loan amount, the time-period in which to pay back the loan (usually within 15-35 days) as well as “tips” for lenders and SoLo itself. SoLo solicited lenders by organizing and vetting a marketplace of these types of loan requests. Loan requests on the platform included a proposed monetary “tip” amount to the lender as well as an additional donation to SoLo. SoLo also encouraged consumers to offer a “tip” to the lender of up to 12% of the loan amount and another donation to SoLo for up to 9% of the loan amount.
While SoLo claimed “tips” were not required to submit the loan to the lender nor to receive a loan, the Department’s investigation revealed of the loans made to Connecticut borrowers from July 2018 to August 2021, included a tip. Further, SoLo recommended consumers tip to receive a loan, even encouraging raising the tip amount to be sure their loan was funded. The inclusion of the dollar amount of the tip as a condition of funding increases the cost of the credit extended to the borrower which is then required to be included in the Annual Percentage Rate (APR) calculation for the loan under Federal Regulation Z. The Department’s investigation revealed that when the APR was calculated for these loans, it ranged from 43% to 4280%, in violation of the usury rate of 12% set out in Connecticut Banking law. Small loan companies license and regulated by the Department may charge up to 36% for these types of loans.
Other violations alleged in the May 2022 notice included incorrect disclosures to borrowers, including not disclosing the lender “tip” or the SoLo “donation” and represented the APR as 0%. In addition, if the borrower failed to pay back the loan, SoLo initiated collections on the account, which it was not licensed to do.
The consent order reached on May 16, 2023 resolves these allegations. By June 15, 2023 SoLo has agreed to reimburse 543 Connecticut consumers any fees paid associated with loans initiated on their platform. The company will also pay a civil penalty of $ 100,000 according to the terms of the order. Since May 2022, SoLo has ceased operating in Connecticut.
To further ensure that Connecticut consumers are protected from excessively high interest rate loans, the Department applauds the recent passage SB 1033. This changes the Department’s small loan law and expressly redefines the finance charge, a necessary component in calculating the APR on loans, to include voluntary fees which captures these types of tips and donations.
Media Contact
Matt Smith, 860-240-8105
matthew.smith@ct.gov