Avant, a leading financial technology company that has helped over a million customers get access to credit cards and personal loans, announced that it has reached a settlement with the State of Colorado resulting in a new safe harbor that brings responsible, transparent lending to Colorado borrowers and protects them against abusive, high-cost credit programs.
"As the first state to establish a responsible safe harbor for consumer lending programs that include a bank partnership, Colorado is giving consumers who would otherwise be unable to secure credit access to innovative and transparent financial services products, and also providing a framework for other states as they work to resolve true lender claims," said James Paris, CEO of Avant. "Our team worked closely with the Colorado Attorney General and his team to create a safe harbor that defines responsible partnerships between banks and fintechs and, ultimately, resolves the 'true lender' issue in a manner that creates certainty for everyone. This is a pivotal moment in lending for consumers and for the industry at large."
The safe harbor makes a clear distinction between abusive lending programs that operate outside the scope of regulators with significantly higher interest rates and accountable programs with bank oversight standards and protections, establishing 36 percent as the maximum APR allowable for loans originated by banks under the partnerships. It also requires banks to actively supervise all aspects of the program in accordance with banking guidelines, including loan advertising, loan terms and credit criteria.
The idea to collaborate on the safe harbor emerged as Avant and the Attorney General's team worked toward an agreement to settle a true lender dispute. The parties saw an opportunity to work together to create a new framework that would allow banks and fintechs to concentrate on cost-effectively providing needed funds for consumers, while ensuring the transactions were transparent to those consumers and involved responsible and highly regulated parties.
A 2020 study by Michael Turner, Ph.D., an expert and academic research analyst with over 20 years of experience in consumer and commercial credit reporting, showed that restricted access to credit would likely force Colorado populations of relatively lower-risk borrowers to have their credit needs met by higher cost alternative financial services providers. The study found that the borrowers included in the study "would not have qualified for more competitive terms and conditions for credit of the same duration and would otherwise have to resort to higher cost credit options offered by fringe financial institutions to meet their real credit needs."
As part of the settlement, Avant and other parties involved will also make a $500,000 donation to the Colorado MoneyWi$er program, a comprehensive grant program focused on system-wide K-12 financial literacy education.
"We commend Attorney General Weiser and his entire team for their collaborative, innovative and entrepreneurial approach to arriving at a resolution that meets the needs of Colorado consumers, while ensuring they remain adequately protected through appropriate regulatory oversight," said Paris. "We also hope to build a deeper relationship with the MoneyWi$er program to support financial literacy awareness among young Coloradans."