DFPI Orders $4 Million Penalty For Alleged Unlicensed Lending Violations

On June 8, the DFPI announced that it had entered into a consent order with a commercial equipment lender, requiring the company to pay $4 million penalty and provide borrower refunds. According to the DFPI, the lender allegedly violated the California Financing Law by engaging in unlicensed lending activity, paying compensation to unlicensed brokers, and charging unlawful interest and fees.

The alleged violations were identified during the company’s 2023 application for a California Financing Law license. According to the consent order, some loans under $5,000 were deemed consumer loans subject to California’s small-loan provisions. Specifically, the consent order alleges that the company:

• Engaged in unlicensed lending. The company allegedly originated California loans before obtaining a license under the California Financing Law.
• Compensated unlicensed brokers. According to the DFPI, the company paid third-party brokers that were not licensed or exempt.
• Charged unlawful interest and fees. Certain loans under $5,000 allegedly included interest and administrative fees above California’s statutory limits.

Under the consent order, the company must pay the $4 million penalty, refund borrowers who paid interest above California’s statutory caps on covered loans, provide notice to eligible borrowers before issuing refunds, submit a report to the DFPI confirming compliance with the refund program, and pay $78,000 in investigative costs.

Putting It Into Practice: The consent order is the latest in a series of state enforcement matters focused on licensing compliance (previously discussed here, here, and here). Companies engaged in lending, brokering, servicing, money transmission, or similar regulated financial activities should evaluate licensing coverage across applicable states and monitor whether business partners, referral sources, and compensation arrangements create additional licensing obligations.