(Bloomberg) -- Rodney Williams and Travis Holoway co-founded peer-to-peer lending platform SoLo Funds Inc. in 2018 with a commitment to help the millions of Americans targeted by abusive lenders. One of the few Black-founded startups in venture capital – a demographic that secured only 0.48% of all venture dollars in 2023 – SoLo Funds positioned itself to be a lending solution for those who find themselves cash-strapped in emergency situations.
The founders branded the Los Angeles-based fintech firm as a third-party platform that connects borrowers to lenders with no mandatory fees or interest; users could request loans of up to $575, which then must be repaid to individual lenders within 35 days. SoLo’s business model quickly garnered attention and has helped many since launching. The company reached almost 2 million users earlier this year, nabbed a spot on CNBC’s 2023 Disruptor List and received financial support from the venture fund of tennis superstar Serena Williams.
But hundreds of SoLo users and officials in three states and Washington D.C. say the company has broken its promise. Several lawsuits plus internal turmoil and claims of suspicious business practices have raised questions about who ultimately benefits from the services SoLo Funds provides, and who may be harmed.
On October 16, a class action lawsuit was filed against the company alleging that SoLo Funds’ lending practices are “unlawful and deceptive.” Per the suit, SoLo Funds led customers to believe they were signing up for an interest free-loan, however, most borrowers end up paying a fee masked in the form of “tips” to the lender and “donations” to the company.
Regulatory Woes
The Consumer Financial Protection Bureau in a May complaint said the total cost of some loans serviced by SoLo Funds carry an equivalent annual percentage rate of over 1,000%, and that the company harms consumers by hiding a “no donation” option, placing it deep within the settings section of the mobile app. The District of Columbia, Pennsylvania, Connecticut, and California have also sued the company within the last two years on similar grounds. SoLo Funds does not admit wrongdoing in any of the cases. The company has reached settlements with all agencies except for the CFPB, whose case is still ongoing.
Several former SoLo Funds employees – most spoke on the condition of anonymity for fear of retribution – said the founders instructed them to deliberately bury “toggle off” donation options. In a statement to Bloomberg News, SoLo Funds denies that the company makes it intentionally difficult for users to opt out of paying tips or donations.
Between July 2022 and July 2023, SoLo Funds spent over $1 million in legal fees, according to documents seen by Bloomberg. The company said that over 90% of these fees were spent on “navigating the most complex regulatory landscape in the United States.” In a consent order in May 2023, the California Department of Financial Protection and Innovation accused SoLo Funds of brokering consumer loans without the required license, which the company has since submitted an application for, a DFPI spokesperson said. SoLo Funds said in a statement last year that it reached an agreement with the DFPI to resume operations in California and told Bloomberg News that it has “been in regular communication with CA Regulators (and many other states), all of which are related to a new product launch rolling out in California and beyond.”
“The thing that I worry about with all of these products is they are for people who can least afford it,” said Ted Rossman, a senior industry analyst at Bankrate, of lending platforms. “While the payday loan industry, rightfully so, has a very negative connotation, some of these new-ish things are talking a kinder, friendlier, gentler language, but could be loan-sharky in their own way.”
Gary Tumanov, a SoLo Funds lender in Illinois, said that he’s attempted to collect $1,000 worth of outstanding payments from users he loaned money to over the last five years. When borrowers default on a loan, SoLo Funds’ policy is to transfer the account to a third-party collections agency to attempt to recover at least a portion of the money creditors are owed. However, Tumanov said that he has never been contacted by a collections agency or received an update on the status of the money he loaned. Hundreds of users on a subreddit for SoLo lenders have posted similar complaints regarding SoLo Funds’ efforts to recover overdue loans. The company said Tumanov has “not regularly engaged in our platform, ignored the follow-up emails from our employees, or is making false statements about how it operates.”
Frustrated with unpaid loans, anonymity of borrowers and lenders, and difficulty getting funded, SoLo Funds users took matters into their own hands. Last year, users launched a Discord server for borrowers and lenders to connect, and even conduct transactions informally.
“SoLo Funds is nickel and diming the lenders and not monitoring the borrowers,” said Casey Brock, a borrower and lender from Montana. “They advertise their platform like you are guaranteed to get funded in as little as 20 minutes.” Many borrowers have posted complaints about waiting weeks for a loan to process.
When users asked about the CFPB lawsuit in SoLo Funds’ Discord channel, Williams said it showed the company is “really up to something groundbreaking.”
The recent regulatory actions filed against SoLo Funds come as no surprise to a number of former employees, who described the founders as being more concerned with growth and raising money than improving the product itself. The former employees added that the founders often prematurely introduced new features into the app and inflated key business metrics to investors.
From 2020 until mid 2023, a former employee said that SoLo Funds did not write off receivables on loans it was responsible for collecting under its secured loan product. This led to revenue numbers that were inflated by millions of dollars, according to documents seen by Bloomberg and a person with knowledge of the situation who asked not to be named discussing private information. SoLo Funds rejects these estimations.
“The accounting [rules] are meant to be conservative, meaning you are a bit more aggressive in anticipating losses, but you should absolutely not be aggressive in anticipating gains,” said Shiva Rajgopal, a professor of accounting and auditing at Columbia Business School.
Donation-based models in the loan industry aren’t exclusive to SoLo Funds. Fintech Dave offers short-term loans of up to $500 with its ExtraCash feature, which also gives borrowers the choice to tip. But unlike Dave, which makes loans directly to borrowers, SoLo Funds acts as an intermediary for loans between everyday people.
“The founders were not actually making decisions in alignment with the values they set up for the company,” said a former employee. “They were not making decisions that were protective of borrowers.”
Between 2022 and 2023, SoLo Funds entered into lending agreements totaling nearly $1 million with people the founders sometimes knew personally, who agreed to deploy funds into their SoLo Funds account in exchange for a guaranteed 1% monthly return, according to a person familiar with the arrangements.
“All lending or debt agreements have adequately been papered,” the company said in a statement.
Internal Disagreements
One of the company’s former senior leaders said the founders occasionally concealed unflattering but accurate information to board members.
“On numerous occasions I was asked to remove things from my presentation to the board that were like ‘I think we have a risk here,’ or ‘I think there’s potential for something wrong here,’” the person said. “I felt like my job would’ve been in danger if I had gone to talk to a board member independently.” SoLo Funds denies these claims.
Opposition toward company decisions were often met with contempt by Williams and Holoway, according to a former member of SoLo’s senior leadership team, who described the co-founders’ decision-making as “erratic.” SoLo Funds disagrees with this assertion, but at least seven senior level employees said they left the company due to what they characterized as poor leadership.
“Any time there was a disagreement with a founder, that person was determined to not be a team player, and then was basically managed out,” said a former employee who worked closely with the founders. “I’ve witnessed the promise of bonuses that never were paid out. I’ve seen people get shouted down if they weren’t agreeing with what the co-founders were saying. I’ve seen gaslighting of female employees.”
Before SoLo Funds, Williams co-founded ultrasonic data transmission platform LISNR. In 2020, a former employee of LISNR filed a lawsuit against SoLo Funds and Williams, alleging that Williams “repeatedly and regularly” required her to “perform sexually-oriented tasks,” and that she was discriminated against based on her gender. The suit was eventually dismissed by the plaintiff, who declined to comment. However, multiple former female employees at LISNR told Bloomberg News that they experienced similar behavior by Williams, but said there was no human resources representative they could report to at the time.
“SoLo can only speak to its company and its atmosphere,” the company said in a statement. “To date, SoLo Funds has never had even a claim of harassment filed, nor has it been sued by any employee (current or former) for any reason, but especially not for misconduct by Williams or any other leadership member.”
LISNR didn’t respond to a request for comment.
Williams stepped down as CEO of LISNR in 2018 shortly after starting SoLo Funds with Holoway, a Cleveland native who previously worked at Northwestern Mutual. Williams, who’s from Baltimore, worked at Procter & Gamble before LISNR.
Multiple former SoLo Funds employees referenced a disagreement with the founders in May last year over a decision to reset users’ passwords after at least 37 SoLo Funds accounts were accessed by unauthorized users – only to realize the company lacked the proper software to remediate. Eventually, the company implemented a password reset. Between 2021 and June 2023, SoLo Funds experienced six incidents of fraud, which cost the company at least $1.3 million, according to documents viewed by Bloomberg. SoLo Funds told Bloomberg News that the company’s record is much cleaner than that.
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