FinWise Bank Lawsuit: A Consumer Protection Concern

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FinWise Bank is a Utah-based bank that partners with nonbanks to offer high-cost consumer loans. The bank has been facing scrutiny from consumer advocates and regulators for its predatory lending practices. In 2023, a coalition of consumer advocacy groups filed a letter with the Federal Deposit Insurance Corporation (FDIC) urging the agency to downgrade FinWise’s Community Reinvestment Act (CRA) rating.

Predatory Lending Practices

FinWise Bank’s lending partners offer loans with interest rates of up to 160%. These loans are often targeted at borrowers with poor credit history, who are already struggling to make ends meet. FinWise Bank’s partners also engage in other predatory lending practices, such as:

  • Charging high fees: Borrowers may be charged upfront fees, origination fees, and late fees. These fees can add up to hundreds of dollars, making it even more difficult for borrowers to repay their loans.
  • Deceptive marketing: FinWise Bank’s partners may use deceptive marketing tactics to lure borrowers into taking out loans. For example, they may advertise loans with low monthly payments, but fail to disclose the high interest rates and fees.
  • Abusive collection practices: FinWise Bank’s partners may use abusive collection practices to collect on defaulted loans. For example, they may call borrowers repeatedly, harass them at work, or threaten to sue them.

Consumer Protection Concerns

FinWise Bank’s lending practices have raised serious consumer protection concerns. Borrowers who take out high-cost loans from FinWise Bank’s partners are at a high risk of defaulting. When borrowers default, they can face serious financial consequences, such as wage garnishment, repossession, and foreclosure.

Regulatory Scrutiny

FinWise Bank is facing scrutiny from regulators at both the state and federal level. The FDIC is investigating FinWise Bank’s CRA rating, and the Consumer Financial Protection Bureau (CFPB) is investigating the bank’s lending practices.

Conclusion

FinWise Bank’s lending practices raise serious consumer protection concerns. Borrowers who take out high-cost loans from FinWise Bank’s partners are at a high risk of defaulting. Regulators at both the state and federal level are investigating FinWise Bank’s practices.

Frequently Asked Questions (FAQs)

Q: What is a predatory loan?

A: A predatory loan is a loan that is made with unfair or abusive terms and conditions. Predatory loans often target borrowers with poor credit history or who are struggling to make ends meet. Predatory lenders may use deceptive marketing tactics to lure borrowers into taking out loans, and they may charge high interest rates and fees.

Q: Who are FinWise Bank’s lending partners?

A: FinWise Bank partners with nonbanks, such as American First Finance, Elevate, and Opportunity Financial (OppFi). These nonbanks offer high-cost consumer loans to borrowers with poor credit history.

Q: What are the consequences of defaulting on a high-cost loan from FinWise Bank?

A: Borrowers who default on a high-cost loan from FinWise Bank may face serious financial consequences, such as wage garnishment, repossession, and foreclosure.

Q: What is the FDIC doing about FinWise Bank?

A: The FDIC is investigating FinWise Bank’s CRA rating. The CRA is a federal law that requires banks to meet the credit needs of the communities they serve.

Q: What is the CFPB doing about FinWise Bank?

A: The CFPB is investigating FinWise Bank’s lending practices. The CFPB is a federal agency that is responsible for protecting consumers from unfair and abusive financial practices.

References:

  • National Consumer Law Center: FDIC Should Downgrade Second Utah Bank Over Predatory ‘Rent-a-Bank’ Lending: https://www.nclc.org/fdic-should-downgrade-second-utah-bank-over-predatory-rent-a-bank-lending/
  • American Banker: After win, consumer advocates target FinWise Bank over expensive loans: https://www.americanbanker.com/news/after-win-consumer-advocates-target-finwise-bank-over-expensive-loans
  • Consumer Federation of America: FDIC Should Downgrade FinWise Bank Over Predatory ‘Rent-a-Bank’ Lending: https://consumerfed.org/press_release/fdic-should-downgrade-finwise-bank-over-predatory-rent-a-bank-lending/

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