Lender under investigation for rate cap fraud settles with California
California’s financial regulator has entered into a consent agreement with high-cost lender LoanMart, banning the company from marketing or managing certain auto title loans in the state for nearly two years.
The deal applies to auto title loans under $ 10,000 that carry APRs above 36%, the agency said in a press release. It is in place for the next 21 months.
The settlement is the first under a 2019 California law that caps annual percentage rates on certain installment loans at 36%, the California Department of Financial Protection and Innovation said Wednesday. Previously, consumer installment loans between $ 2,500 and $ 9,999 had no legal limit in California.
The department had been investigate if LoanMart, which is a brand of Wheels Financial Group, broke the two-year-old rate cap law. LoanMart has historically charged more than 100% APR, but shifted gears once the law came into effect in 2020, according to the department.
Most recently, LoanMart marketed and managed loans from Provo, Utah-based Capital Community Bank, which had an APR of over 36%. Banks are generally able to export interest rate rules applicable in their state, but California regulators were looking to see if the bank was a secondary player in the partnership and not the actual lender.
LoanMart ceased marketing the high-cost loans in November 2020 as the investigation continued, according to the California agency.
“The DFPI is committed to ensuring that banks outside the state do not exploit Californians,” Commissioner Clothilde Hewlett said in the statement. “DFPI will continue to fight any effort to evade California’s Fair Access to Credit Act and will work closely with state and federal regulators to monitor and respond to practices that harm consumers. “
Under the settlement agreement, LoanMart has neither admitted nor denied that it violated California law. The company, which had previously expressed confidence that its operations were in full compliance with applicable state or federal laws, did not respond to a request for comment on Wednesday.
Capital Community Bank, which has $ 523 million in assets, also did not respond to a request for comment.