On February 24, a California state court issued a preliminary decision granting summary judgement to a financial technology platform in litigation brought by the California Department of Financial Protection and Innovation (DFPI), which alleged violations of the California Financing Law (CFL) and the California Consumer Financial Protection Law in connection with a bank-fintech partnership lending program.
The case represents one of the most closely watched state enforcement actions challenging bank–fintech partnership lending models under the “true lender” doctrine.
The dispute stems from a program in which an out-of-state state-chartered bank originated consumer loans offered via the fintech platform. The DFPI alleged that the fintech, rather than the bank, functioned as the “true lender” of the loans and that the structure was designed to evade California’s interest rate cap established under the Fair Access to Credit Act, which imposes a 36% annual interest rate limit on certain consumer loans. According to the regulator’s allegations, the bank partner merely “rented” its charter while the platform allegedly performed key lending functions such as marketing, underwriting, and servicing.
The court concluded the regulator had not created a triable issue of the fact that the bank partner acted as a nominal or “dummy” lender. The decision highlighted several aspects of the lending program that the court found inconsistent with the regulator’s allegations:
- Bank control over underwriting and approval decisions. The court pointed to evidence indicating that the bank established underwriting criteria, performed final underwriting, and maintained authority to approve or reject loan applications. The court also noted evidence that the bank reviewed proposed changes to underwriting models and could reject applications that did not meet its standards.
- Bank funding of the loans at origination. The court emphasized evidence showing that the loans were funded with the bank’s own funds from accounts controlled by the bank, and that the platform did not supply the capital used to originate the loans.
- Bank ownership and economic interest in the loans. The court also cited evidence indicating that the bank retained ownership of the loans at origination and maintained an ongoing economic interest in the receivables, exposing the bank to risk of loss.
- Bank oversight of marketing and compliance functions. According to the court, the record showed that the bank reviewed and approved consumer-facing marketing materials, oversaw vendor relationships, and maintained compliance oversight of the program.
The decision emphasized that, under longstanding California precedent, whether a loan is unlawful generally depends on whether it is usurious at the time of origination. The court also noted that federal law permits state-chartered banks to export interest rates permitted in their home state under the Federal Deposit Insurance Act.
Putting It Into Practice: The tentative ruling represents a significant development in ongoing litigation and regulatory scrutiny surrounding bank–fintech partnership lending models and “true lender” doctrine. Although the ruling remains tentative, it represents a serious win for the fintech platform in a case that has been closely watched by regulators and industry participants. Further proceedings and a trial are likely. Institutions operating similar lending models should continue to monitor further developments in the case and ongoing regulatory scrutiny of bank–fintech partnership structures.