On June 6, 2016, the West Virginia Attorney General announced a settlement with a regional online lender over allegations that the lender’s business practices violated West Virginia’s Consumer Credit and Protection Act. The company markets and sells online installment loans, through an alleged “bank-partnership model.” Under the bank-partnership model, a company partners with a local bank to originate the loan, but the bank immediately sells the loan to the company after origination. The company does all the origination work – including advertising the loans, taking applications and analyzing credit history. The bank-partnership model allegedly permits lenders to avoid a state’s usury law because banks are only bound by their home state’s usury laws (which in some cases is nonexistent) and the bank officially originates the loan. According to the Attorney General, the company used this model to originate loans that violated West Virginia’s usury laws. The company also allegedly misled consumers about its credit monitoring and loan modification services. The company expressly denied that it acted unlawfully and noted that it stopped originating loans to West Virginia consumers after the West Virginia Supreme Court concluded that the bank-partnership model violates the West Virginia Consumer Credit and Protection Act. Under the settlement agreement, the company will refund all interest collected on the subject loans, pay a $225,000 fine, and repair any negative credit reports.
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