In a motion for a preliminary injunction and accompanying memorandum of points and authorities, the California Department of Financial Protection and Innovation (DFPI) is asking a California state court to order fintech Opportunity Financial LLC (OppFi) to stop facilitating loans to California borrowers from its partner FinWise Bank at interest rates above the interest rate cap (generally 36% plus the Federal Funds Rate) imposed by the California Financing Law (CFL). FinWise Bank, a state-chartered FDIC-insured bank located in Utah, is not subject to that interest rate cap.  

The injunction motion is DFPI’s latest volley in litigation that started in March 2022 when OppFi filed a declaratory judgment complaint in response to the DFPI’s stated intent to enforce California usury laws against OppFi in connection with loans originated by FinWise Bank. In April 2022, the DFPI filed a cross-complaint claiming the California usury laws applied because OppFi was the “true lender”. OppFi later filed a cross-complaint asserting DFPI’s “true lender” approach constituted an impermissible “underground regulation”, the DFPI filed a demurrer to (or in the alternative, a motion to strike) that cross-complaint, and OppFi in turn has asked the court to overrule DFPI’s demurrer.   

DFPI’s motion for preliminary injunction now asks the court to find that DFPI is likely to win the lawsuit, and therefore to enjoin OppFi from making any further loans above the CFL interest rate cap pending the outcome of the litigation.   

To support its position that there is a “reasonable probability” it will prevail in the litigation, the DFPI generally repeats arguments set forth in its earlier cross-complaint against OppFi, including allegations that a substance-over-form / totality of the circumstances analysis to be performed under California law results in a determination that OppFi, not FinWise Bank, is the “true lender” and therefore the loans in question are subject to California’s usury law; that OppFi’s “predominant economic interest” in these loans indicates it is the “true lender”; and that California’s usury law reflects a public policy that the CFL interest rate limits should apply to these loans: “the legislature has already determined that such usurious transactions are contrary to the public interest and will result in significant public harm.”

The DFPI further avers that OppFi’s website design supports the assertion that OppFi is the “true lender”: 

“…OppFi owns the OppLoans website…The logo on the landing page for OppLoans even says “OppLoans by OppFi.” OppFi is referenced multiple times on the landing page, including as a lender.”

By contrast, the DFPI points out, “FinWise is not referenced on the landing page”.

The DFPI asserts that denial of an injunction would leave California consumers at risk of “being ensnared by usurious loans”, and that prevention of this potential harm outweighs the financial harm and business risks that OppFi would suffer if the injunction were granted, which the DFPI dismisses as a “limited hardship”. The DFPI further maintains that an injunction would preserve the status quo, notwithstanding the fact that an injunction would mandate a substantial change in OppFi’s and FinWise Bank’s current business practices.

We anticipate OppFi soon will weigh in with a response to the DFPI’s motion for preliminary injunction, which is scheduled to be heard in court on March 16, 2023.