OppFi Secures Major Victory Upholding Fintech Bank Partnership Model

In a landmark ruling with significant implications for the $460+ billion fintech industry, digital finance platform Opportunity Financial (“OppFi”) secured summary judgment in Opportunity Financial, LLC v. Hewlett, No. 22STCV08163 (Cal. Super. Ct., L.A. Cnty.), defeating a challenge brought by the California Department of Financial Protection and Innovation ("DFPI") to the fintech bank partnership model.

This ruling is one of the most significant judicial validations of the bank-fintech partnership model to date and is expected to have nationwide influence, as regulators in multiple states have pursued or considered similar true lender challenges to bank-fintech partnerships.

THE CASE

• The DFPI had accused OppFi of using its banking partner, FinWise Bank, as a front to sidestep California's 36% interest rate cap—a practice critics call "rent-a-bank” – and sought to shut down OppFi’s platform and impose over $100 million in penalties.

THE DECISION

• After a four-year battle, Judge Gary D. Roberts of the Los Angeles County Superior Court granted OppFi's motion for summary judgment, ruling that FinWise Bank—not OppFi—is the true lender of the at-issue loans and that California's interest rate caps do not apply to loans made by the Utah-chartered bank.
• The court agreed with all of Orrick's arguments, finding that OppFi met its burden in demonstrating that FinWise is not "merely a dummy" lender and that the bank-fintech relationship is not a sham.
• The undisputed evidence established that FinWise controls the application and underwriting processes, funds the loans with its own money and retains title to and ownership of the loans, bears substantial risk of loss, independently reviews and approves consumer-facing marketing, and performs compliance reviews and audits of OppFi and the loan program.

THE IMPACT

• Bank partnerships are the basis of fintech firms’ ability to operate within a highly regulated space. As such, this decision has been closely watched by fintech firms, banks and other regulators.
• The decision squarely rejects the DFPI's effort to apply a "true lender doctrine" to recharacterize a bank as a mere "straw lender" and effectively dismantle the federal interest rate exportation framework that Congress established under Section 27 of the Federal Deposit Insurance Act.
• The court also reaffirmed the longstanding California principle that a loan not usurious at inception does not become usurious by subsequent events, including the sale or assignment of loan receivables—a holding that protects the secondary market for bank-originated loans and the economics underlying virtually every bank-fintech lending program.

THE TEAM

The Orrick team representing OppFi is led by Fredrick Levin and Ali Abugheida with support from Sarah Davis, Brian Wegrzyn, Justin Seccombe, Aveeka Vats and Sheila Zerang.