Los Angeles-based fintech SoLo Funds has been hit with a proposed class action lawsuit alleging the firm misled consumers with false advertising that claimed its loans have zero interest and no hidden fees.
SoLo charged consumers interest and fees disguised as “tips” and “donations,” according to the class action filed in a federal court in the central district of California last week by Danielle Cofield. The complaint said that borrowers who receive loans incur a tip fee, a donation fee, or both, which results in an exorbitant total cost of credit that is not disclosed to the consumer.
“SoLo entices consumers to apply for loans through its platform by falsely representing in its advertisements that a consumer could obtain financing at zero interest,” the lawsuit said.
During the loan application process, borrowers are prompted to select a “tip fee” and encouraged to pay larger amounts as tips to get funds. Additionally, borrowers are prompted to add on a “donation fee” that goes directly to SoLo. The complaint noted that the borrowers are not provided a way to opt out and move on to the next page without selecting an amount to pay toward the donation fee.
The lawsuit further alleges that SoLo obscures the method of opting out of paying the donation fee by labeling it in another section of its mobile application and fails to guide consumers on how to turn off the donation fee option.
Though the “consumer-friendly alternative to high-cost, short-term loans” platform provides those seeking loans with documents that explain the amounts they owe and the costs of the loans, SoLo doesn’t clarify the fees that it will collect from borrowers, the court document said.
The fintech issues loans ranging from $20 to $575, and borrowers can select a single repayment date any time that is less than a month after the loan is funded.
Cofield, an Ohio resident who has used the platform since 2021, alleged SoLo Funds tried collecting payment on a $500 loan it never funded. The plaintiff seeks class action certification to secure monetary compensation for all affected class members, and to stop the defendant from profiting from alleged unlawful practices and prevent continued harm to class members. The plaintiff also requested compensatory damages for the entire class and equitable relief.
SoLo didn’t immediately respond to a request for comment.
SoLo, one of the few Black-owned fintechs, was founded in 2018 by Rodney Williams and Travis Holoway in New York City. The company said in May that it had saved consumers an estimated $40 million in fees compared to subprime credit cards.
SoLo’s lending practices have long been under scrutiny. Several state regulators have fined SoLo over its tip and donation features.
In July, Pennsylvania Attorney General Michelle Henry reached a settlement with SoLo, following allegations that the fintech violated the state’s lending laws and engaged in unfair and deceptive practices. Under the settlement, SoLo was ordered to pay $158,000 in restitution, $25,000 in civil penalties, and more than $25,000 in investigation charges. The firm was also required to modify its business practices in the state and cease all collection efforts.
In May, the Connecticut Department of Banking found that labeling finance charges as “tips” violated state law, ordered reimbursement of all fees to Connecticut borrowers, and imposed civil penalties. SoLo agreed to pay $100,000 to the state’s banking department, which issued a cease-and-desist order.
The settlement with the Connecticut regulators followed resolutions with regulators in California and Washington D.C. SoLo had to pay $50,000 to the Department of Financial Protection and Innovation in California and $30,000 in restitution to D.C.’s regulator.
SoLo did not admit to any wrongdoing in any of the cases.
The fintech has also been on the Consumer Financial Protection Bureau’s radar, with a case ongoing since May. SoLo pointed out in a statement following the issuance of the CFPB complaint that it had been wrongly accused of misconduct “regarding its voluntary tipping fee structure and peer-to-peer community finance model,” with the tips going to community members. The company further said it had engaged with the CFPB for over 18 months and nearly reached an agreement before the unexpected lawsuit.
CEO Holoway said at the time that the lawsuit was “selective” against minority innovators. He argued that his company was created to address financial inequalities in underserved communities through innovation, but enforcement actions worsen the wealth gap rather than protect consumers.
“It's important to note that this call for innovation has stemmed from a long history of predatory practices and products that have disproportionately impacted low- to middle-class communities,” Holoway said in May. “Ironically enough, regulators have provided clear licensing frameworks for the products that harm consumers most today, such as subprime credit cards and payday loans.”
