On November 15, 2023, the Consumer Financial Protection Bureau (CFPB) announced a significant enforcement action against a fintech installment lender. The unnamed lender, a publicly traded online entity specializing in small-dollar loans, has agreed to settle allegations of violating a 2019 consent order. Notably, the online lender, until 2022, also extended payday loans to consumers.
This decision is part of a larger trend of regulatory scrutiny and enforcement actions targeting fintechs and online lenders. Much of this attention has focused on lending practices, specifically those companies offering payday loan products. The application of these practices by firms operating primarily or entirely online presents particular challenges, both in terms of consumer protection and regulatory oversight.
The terms of the settlement included a fine of $15 million, a hefty sum reflective of the CFPB’s commitment to enforcing its consent orders. While the specific allegations in this case have not been made public, the punitive nature of the fine suggests serious infractions were at play. Recall that a consent order is a type of settlement in which one party agrees to stop an alleged illegal activity without admitting guilt or wrongdoing—often accompanied by a financial penalty.
This case serves as a stark reminder to online lenders and fintech companies of the critical importance of complying with regulatory orders, especially those originating from bodies as influential as the CFPB. Any lapse, whether through oversight or willful neglect, can result in substantial financial penalties, reputational damage, and potentially even more stringent regulatory oversight.
As we anticipate more stringent regulations within the fintech sector, and specifically among online lending companies, it is advisable for these entities to ensure they have robust compliance systems in place. This could go a long way in not only preventing violations but also in demonstrating good faith should a violation occur.
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