/>iIn an order issued in January and made public on February 24, a judge in the United States District Court for the Northern District of California granted class certification to consumers alleging a fintech lender’s loan transaction fees were imposed unlawfully, while also granting summary judgment to the lender on claims regarding performance fees due to insufficient evidence.
The lender partnered with contractors and banks to provide point-of-sale loans to consumers for home-improvement and home-maintenance projects. The contractors used a technology platform developed by the fintech lender to offer financing offers to the consumer. The complaint alleges, among other claims, that the company violates California’s Credit Services Act, including by collecting transaction and performance fees, failing to provide specific disclosures, and failing to register with the California Department of Justice. It also alleges the company violates California’s Unfair Competition Law by violating the Credit Act and by violating the California Financing Law by not being licensed.
The court certified a class of California borrowers who took out consumer program loans of $500 or more from January 9, 2016 onward, where the loan was subject to a transaction fee of at least 1% of the principal amount. The court determined that the case met the necessary legal standards for class action status, including sufficient class size and commonality of claims.
The court also rejected the lender’s request for summary judgement on plaintiffs’ transaction fee claims, affirming that the fees may have been indirectly passed to consumers through higher project costs. The court determined that plaintiffs had provided sufficient evidence supporting these claims, allowing the case to proceed.
Conversely, the court granted summary judgment in favor of the lender on claims related to performance fees, determining that plaintiffs had failed to establish a direct financial impact on borrowers. While plaintiffs suggested that these fees contributed to increased interest rates, the court found no clear evidence supporting this assertion.
Putting It Into Practice: The case highlights the ongoing scrutiny of fintech lending models, particularly with respect to fee disclosures and cost pass-through mechanisms. Lenders should continue to monitor developments in this space; while federal enforcement agencies may step back, we expect the plaintiffs’ bar to continue to be active.
