California DBO Settles with Point-of-Sale Lender Making Illegal Loans

​On January 16, 2020, the California Department of Business Oversight (DBO) announced it had reached a settlement with a point-of-sale lender​ to stop making illegal loans and refund $282,000 in fees it collected from almost 17,000 California consumers.

In September 2019, the lender applied to the California DBO for a lender’s license.  Upon review of the lender’s product and information, the California DBO denied the application after determining the lender had engaged in illegal unlicensed lending in the state.  According to the denial order, since 2016, the lender offered a product that allowed consumers to “enter into installment loans of small amounts in order to purchase products online at over 6,800 participating merchants.”  To do this, the lender would purchase credit sale contracts from merchants who sell goods to consumers.  However, the California DBO found that the “credit sales” made by the lender’s “merchant partners” were actually structured to evade otherwise applicable consumers protections, and that the purchasing of credit sale contracts between merchants and California consumers constitutes the making of loans under California law and requires a CFL license.

Under the consent order, the point-of-sale lender must desist and refrain from engaging in unlawful finance lending in California, cease providing loans or extensions of credit by purchasing credit sales contracts from merchants, pay a penalty of $28,200 to the California Department of Business Oversight, and refund all fees paid to the lender by California residents, such as failed payment penalty fees and payment-rescheduling fees.