Key Takeaways:
A California court ruled that FinWise Bank, not OppFi, was the true lender in their partnership, rejecting state regulators' attempt to apply a 36% interest-rate cap to the FinTech's loans.
A California court handed bank-FinTech partnerships one of their most significant legal victories May 19, ruling that FinWise Bank — not OppFi — was the true lender in the lending program challenged by state regulators, allowing the program to continue operating without being subject to California's 36% rate cap under the Fair Access to Credit Act.
"FinWise is not merely a dummy lender and its relationship with OppFi is not a mere sham," Los Angeles County Superior Court Judge Gary D. Roberts wrote in the statement of decision. The court found that FinWise controlled underwriting and loan approvals, funded loans with its own capital, retained title to the loans, maintained compliance oversight and bore meaningful risk of loss.
The California Department of Financial Protection and Innovation had sought more than $100 million in penalties, arguing that OppFi functioned as the true lender because it performed key lending activities and captured 95% to 98% of receivables through post-origination acquisitions. The state characterized the arrangement as a "rent-a-bank" structure designed to evade the rate-cap law. Roberts rejected that argument, relying on longstanding California precedent that "a contract, not usurious in its inception, does not become usurious by subsequent events."
The ruling leaves unresolved the broader economic-substance theory that consumer advocates and some academics have advanced. Critics including George Washington University law professor emeritus Arthur Wilmarth have argued that courts should focus on economic ownership rather than lending formalities — a position that, if adopted on appeal, could require significant changes to partnership structures across the sector. The DFPI has not yet announced whether it will appeal.
What the court decided — and what it didn't
Rather than adopting the predominant-economic-interest test that has become the focal point of regulatory challenges to bank-partnership lending, Roberts focused on whether FinWise was a "mere dummy" lender. He concluded it was not, pointing to FinWise's control over underwriting, its use of its own capital to fund loans, its retention of title, its compliance oversight and its exposure to credit risk.
Notably absent from the ruling was a detailed analysis of the economic-interest theory. Fredrick Levin, a partner at Orrick and counsel for OppFi, said the decision "calls into question the legal tenability of the predominant economic interest test as a permissible factor in true lender analysis."
The last major California true-lender case to reach a similar conclusion was California v. CashCall Inc. in 2015, where a federal court found that a tribal lending entity was the true lender — a decision that was later reversed on appeal, underscoring the uncertainty that persists in this area of law.
Why the industry isn't celebrating too loudly
Weeks before securing the legal victory, OppFi agreed to acquire BNCCORP and BNC National Bank for about $130 million — a move that signals even the company that just won a landmark true-lender case sees owning a bank charter as a more durable strategy than relying on partnership structures alone.
If the DFPI appeals, three scenarios are possible: an appellate court could affirm on narrow grounds, strengthening the immediate outcome while leaving broader questions unresolved; affirm on broader grounds by addressing the predominant-economic-interest theory directly; or reverse, determining that economic ownership deserves greater weight — an outcome that would have implications well beyond OppFi, particularly for programs where FinTechs acquire most receivables shortly after origination.
For banks, the decision reinforces the importance of demonstrating meaningful involvement in lending programs rather than serving as passive charter providers. For FinTech lenders, it removes one source of uncertainty while leaving another intact. And for state regulators, it may shift focus toward economic-interest arguments rather than operational-control arguments in future cases.
This article is for informational purposes only and does not constitute investment advice.
