News Flash: Colorado versus Fintech Update — Magistrate remands Avant

The Grinch came a few days early in Colorado.  A U.S. magistrate judge made a recommendation to the District Court to remand back to state court the pending action filed by the state of Colorado against a marketplace lender based on true lender issues.  The crux of the decision is that, since no bank was a party to the action, there is no basis to exercise federal subject matter jurisdiction.  Objections may be filed with respect to the recommendation and the U.S. District Court is not bound to follow the recommendation or could choose to modify it.  Banks making marketplace loans have filed actions in federal court in Colorado that remain pending.

OLPI believes how the judge framed this issue may be misguided and will fuel inflated concerns about marketplace lending business models.  While the crux of the decision is that an FDIC insured bank was not named in the action, the magistrate judge makes broad factual and legal observations related to a true lender analysis that does not have any real legal precedential value but will no-doubt precipitate a flood of articles from law firms and otherwise rile investor sentiment.  OLPI has already observed that investors in marketplace loans have already grown wary of Colorado loans –as such, the “broad observations” and other actions in the state of Colorado appear to be limiting credit to Colorado citizens from marketplace lenders.  This fact may play into and strengthen the WebBank and Cross River Bank actions that are currently pending in federal courts and discussed here.

The State of Colorado is challenging the marketplace lending model.  On February 15, 2017,  the Administrator of the Uniform Consumer Credit Code for the State of Colorado (“Colorado”) sued Avant and Best Egg (in separate actions), claiming in both actions that they violated Colorado’s usury rate and entered into loan agreements containing a governing law provision other than Colorado.  Click here to see the Complaint against Avant and hereto the see the Complaint against Best Egg.  Colorado sued Avant and Best Egg, but did not sue their partner banks, WebBank and Cross River, respectively.  The Complaints allege that Avant and Best Egg are the true lenders. Read More