Dive Brief:

• Subprime consumer lender Elevate agreed to pay at least $3.3 million in restitution to more than 2,500 Washington, D.C. residents as part of a settlement announced Tuesday after D.C.’s attorney general sued the company, claiming it charged interest at an annual percentage rate (APR) well above the District’s 24% cap.
• The lender also agreed to waive more than $300,000 in past-due interest fees owed by D.C.-based customers, and will pay the District a $450,000 penalty.
• "While we disagree with this lawsuit and believe District residents deserve more — not less — access to credit, we agreed to a settlement … in order to move forward and maintain our focus facilitating access to responsible credit options for those who need it," a spokesperson for the lender told American Banker. The spokesperson said Elevate has complied with all financial regulations.

Dive Insight:

The D.C. attorney general’s office sued Elevate in 2020 over two of the company’s offerings: Rise, an installment loan product with an APR between 99% to 149%, and Elastic, a line of credit whose APR the attorney general said Elevate does not disclose. The AG puts the figure between 129% and 251%. 

Those two lending products, incidentally, were called out Friday by a coalition of 15 consumer advocacy groups urging new leadership at the Federal Deposit Insurance Corp. (FDIC) to crack down on what it considers predatory lending.

The consumer advocates also named six "rogue banks" that enable the loans through partnerships with fintechs. The groups tie three of those banks — Republic Bank, FinWise and Capital Community Bank — to the Elevate products cited in the D.C. suit. FinWise and Capital are chartered in Utah; Republic, in Kentucky. Detractors of such arrangements allege fintechs use banks chartered in states with comparatively lax restrictions on interest rates to skirt caps in other states.

The debate over whether a fintech or its partner bank is the "true lender" has fueled much debate over the past few years. The Office of the Comptroller of the Currency (OCC) sought to clarify the concept in 2020, ruling that a bank is the true lender on loans made in partnership with fintechs if, as of the origination date, it funds the loan or is named the lender in the loan agreement. Further, if one bank is named the lender in the loan agreement and another bank funds the loan, the former is the true lender, the OCC said.

The Senate and House last year voted to rescind the OCC rule under a Congressional Review Act (CRA) resolution. President Joe Biden signed off on that change in June. 

D.C. Attorney General Karl Racine on Tuesday said Elevate is the true lender in his case. "District consumers should be skeptical of any lender, including so-called fin-tech companies, that promise easy money without any financial consequence," he said in a statement. "The truth is often buried in the fine print. Interest rates like those involved in this settlement often exceed 100 percent and have a devastating impact on individuals who are in need of an honest and lawful loan."

Elevate agreed not to advertise loans with APRs of more than 24% to D.C. consumers as part of Tuesday’s settlement. It also said it would work with credit bureaus to delete negative credit information associated with a loan or line of credit that appears on D.C. consumers’ credit reports.

This is not the first settlement Racine has facilitated in recent months. Loan servicer OppFi in December agreed to pay $1.5 million in restitution to more than 4,000 D.C. residents to end a similar lawsuit claiming the company violated the District’s interest rate cap.