Dist. of Columbia v. Elevate Credit, Inc.

Citation554 F.Supp.3d 125
Decision Date15 July 2021
Docket NumberCiv. Action No. 20-1809 (EGS)
Parties DISTRICT OF COLUMBIA, Plaintiff, v. ELEVATE CREDIT, INC., Defendant.
CourtU.S. District Court — District of Columbia

Benjamin Michael Wiseman, David Brunfeld, Aimee Elizabeth Saginaw, Office of the Attorney General for the District of Columbia, Washington, DC, Wendy J. Weinberg, Bethesda, MD, for Plaintiff.

James C. Martin, Pro Hac Vice, Reed Smith LLP, Pittsburgh, PA, Maria B. Earley, Alan Scott Bolden, Reed Smith LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION

Emmet G. Sullivan, United States District Judge

The District of Columbia ("Plaintiff" or "the District") filed this consumer protection enforcement action against Elevate Credit, Inc. ("Defendant" or "Elevate") in the Superior Court of the District of Columbia ("Superior Court") for alleged violations of the District of Columbia Consumer Protection Act ("CPPA"), D.C. Code §§ 28-3901 et seq. The District alleges that Elevate, an unlicensed online money lender, operates what is commonly referred to as a "rent-a-bank" scheme whereby a lender markets and sells high-interest loans to consumers in one state, where interest rate caps are low, using a partnership with a bank chartered in a different state, where interest rate caps are much higher, in an attempt to skirt the lower interest rate caps in the state where the loans are being made. This suit seeks to prevent Elevate from using this alleged rent-a-bank arrangement as an end run around the District's consumer protection laws. The District alleges that Elevate is the "true lender" of loans it markets and sells to District residents that contain interest rates of up to 149% for one of its products and 251% for another of its products—well in excess of the 24% and 6% caps in the District's usury statutes—and that Elevate misrepresents material characteristics of these loans when marketing them to consumers, all in violation of the CPPA. See generally Compl., ECF No. 1-2.

Elevate removed the case to this Court, asserting that jurisdiction exists here pursuant to 28 U.S.C. §§ 1331 and 1441 because the District's claims: (1) are completely preempted by federal banking law; and (2) they implicate significant federal issues and invoke serious federal interests. Notice of Removal, ECF No. 1 at 12.1 Pending before the Court is the District's Motion to Remand to the Superior Court for lack of subject matter jurisdiction. See Pl.’s Mot. Remand ("Pl.’s Mot."), ECF No. 15. Upon careful consideration of the motion, opposition, and reply thereto, the notice of supplemental authority and the response thereto, the applicable law, and the entire record herein, Plaintiff's Motion to Remand is GRANTED .

I. Background
1. Factual Background

The following facts—drawn from the Complaint and documents incorporated by reference therein—are assumed to be true. See Colon v. Ashby , 314 F. Supp. 3d 116, 120 (D.D.C. 2018) (quoting Walter E. Campbell Co. v. Hartford Fin. Servs. Grp., Inc. , 48 F. Supp. 3d 53, 55 (D.D.C. 2014) ) ("When assessing a remand motion, ... the court ‘must assume all of the facts set forth by plaintiff to be true and resolve all uncertainties as to state substantive law in favor of the plaintiff.’ ").

Elevate, a Delaware corporation, is an "online lender that operates through several websites ... to provide predatory, high-interest, short-term loans to consumers that it describes as individuals ‘with little to no savings, urgent credit needs and limited options.’ " Compl., ECF No. 1-2 ¶¶ 1, 10. Elevate describes its business model in its 2019 annual report filed with the Securities and Exchange Commission ("2019 10-K") as "provid[ing] convenient, competitively priced financial solutions to our customers, who are not well-served by either banks or legacy non-prime lenders, by using our advanced technology platform and proprietary risk analytics." Id. ¶ 4. Elevate has "offered, provided, serviced, and advertised loans to District residents in conjunction with FinWise Bank (‘FinWise’), a Utah-chartered bank, for its Rise brand, and Republic Bank & Trust Company (‘Republic’), a Kentucky-chartered bank, for its Elastic brand." Id. ¶ 10. Elevate's Rise brand is an installment loan that offers "fast approval for loans between $500 and $5,000," id. ¶ 24; and its Elastic brand is "a line of credit in amounts between $500 and $4,500," id. ¶ 49. Elevate has provided at least 871 Rise loans and 1,680 Elastic loans to District consumers. Id. ¶ 15. The District alleges Elevate deceptively markets these loans and charges illegal interest rates—between 99% and 149% on its Rise loans and between 129% and 251% on its Elastic loans, "well in excess of the District's usury caps." Id. ¶¶ 23, 48.

According to the District, Elevate is the true lender of the Rise and Elastic loans. Id. ¶¶ 36-47, 68-79. The District alleges that Elevate provides the marketing for the Rise and Elastic products "through direct mail, E-mails, and via banner ads on the Internet that were either accessible to or directed at District residents." Id. ¶¶ 17, 18. Elevate "prepares product offerings and associated marketing materials; develops and places internet, print media, radio and television advertising; designs and develops websites; and delivers all notices and disclosures to consumers." Id. ¶¶ 25, 52. Elevate is solely responsible for "all costs and expenses associated with advertising and developing promotional materials" for Rise and Elastic loans. Id. ¶¶ 26, 53.

The District also alleges that Elevate "has the predominant economic interest in the loans it provides to District consumers via FinWise and Republic." Id. ¶ 22. For the Rise loans, the District contends Elevate funds the loans, reaps the profits of good loans, takes on the risk of bad loans, and acts as the servicer of the loans. Id. ¶ 36. The District contends Elevate "in essence rents FinWise to provide the loan," but "it is Elevate that directs and controls the funding of the loan." Id. ¶ 37. Elevate "funds Rise loans through its captive credit financing relationship with Victory Park Management, LLC (‘VPC’)," which provides debt financing for Elevate, without which Elevate would "have to secure other sources of debt financing or potentially reduce loan originations." Id. ¶ 38. Elevate also "reaps most of the profits" from the Rise brand loans. Id. ¶ 39. In 2019, Elevate's revenue from the Rise brand loans totaled approximately $390,354,000. Id. ¶ 40. Elevate EE SPV ("EE SPV")"a Cayman Islands special purpose vehicle that operates for the financial benefit of Elevate"—has allegedly purchased a 96% interest in the receivables for the Rise loans, including the principal and interest due on the loans. Id. ¶ 41. The District contends that EE SPV is thus the "legal and equitable owner of the receivables from the loans," and these receivables generate income for Elevate, "the primary beneficiary of EE SPV." Id. Indeed, Elevate's financial statements include "revenue, losses and loans receivable related to the 96% of Rise installment loans originated by FinWise Bank and sold to EE SPV." Id. ¶ 42. Elevate also "takes the risk of bad loans." Id. ¶ 44. Specifically, "Elevate provides credit protections to EE SPV against Rise loan losses," which "places the risk of losses on Elevate." Id. ¶ 45. Furthermore, "FinWise's interests are protected in its agreement with EE SPV by a requirement that EE SPV maintain cash collateral in a FinWise account in specified amounts to secure its obligations to purchase the loans." Id. ¶ 46.

Similarly, for the Elastic brand loans, the District alleges Elevate reaps the profits of good loans and takes the risk of bad loans. Id. ¶ 68. Again, the District contends "Elevate, in essence[,] rents Republic to originate the loans that it ultimately controls and profits from through Elevate SPV (‘ESPV’)." Id. ¶ 69. According to the District, Elevate's 2019 10-K explains that Elevate needs a bank (i.e. , Republic) to provide access to the Automated Clearing House ("ACH") system to deposit the loans into consumers’ accounts and to withdraw the repayments, and "if these banks cease to provide ACH processing services or are not allowed to do so, [Elevate] would have to materially alter, or possibly discontinue, some or all of [its] business if alternative ACH processors or other payment mechanisms are not available." Id. ¶¶ 70-71. Elevate also profits from the Elastic loans, having brought in approximately $248,518,000 in revenue in 2019 from those loans. Id. ¶ 72. ESPV—another Cayman Islands special purpose vehicle "that operates for the financial benefit of Elevate"—has allegedly purchased a 90% interest in the receivables for the Elastic brand loans, including the principal and interest due on the loans. Id. ¶ 73. ESPV is therefore, according to the District, the legal and equitable owner of the receivables of the loans, and those receivables generate income for Elevate. Id. As was true with respect to the Rise loans, Elevate's financial statements include "revenue, losses and loans receivable related to the 90% of Elastic loans originated by Republic and sold to ESPV." Id. ¶ 75. Elevate also "takes the risk of bad Elastic loans." Id. ¶ 76. "Elevate provides credit protection to ESPV against Elastic loan losses," meaning "Elevate holds the risk for loan losses." Id. ¶ 77. "Republic's interests are protected in its agreement with ESPV by a requirement that ESPV maintain cash collateral in a Republic account in specified amounts to secure its obligations to purchase the loans." Id. ¶ 78.

The District also alleges that Elevate, "through one of its subsidiaries, also acts as the servicer for" the Rise and Elastic loans, which includes reconciling the accounts, posting payments and other credits to the accounts, and providing periodic billing statements. Id. ¶¶ 47, 79. In addition, Elevate has "either registered trademarks or has pending applications in the United States for the marks Rise and Elastic" and ...

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