The business model of finance platform SoLo Funds is being investigated by the state of Maryland.

How It Differs From Traditional Financial Institutions

As previously mentioned by AFROTECH, SoLo Funds was created by Travis Holoway and Rodney Williams to ensure cash-strapped Americans can receive emergency capital in as little as 30 minutes from their phone. According to The Baltimore Sun, “users can ask to borrow up to $575 and lend to other members.”

Per the official website of the fintech company, the founders are breaking free from the standard model adopted by traditional financial institutions and strive to be uncompromising on key principles, such as “transparency, simplicity,” and fair terms.

How The Business Model Is Structured

This is applied by providing its users with greater “financial autonomy” and allowing them to lend to other members as a way to make an impact. These members can also return the favor.

“You should be able to earn money with your money — with more control. SoLo makes it simple. You lend to other members, to help them replace a tire, cover a bill, or for any reason. They pay you back and add a voluntary tip as a sign of appreciation. You benefit. So does the borrower,” the website states.

Borrowers can set their own guidelines too, and the website also claims there is no rollover fees, compound interest, or debt traps.

“Borrowing from friends and family can get complicated. Payday loans and credit cards can make a tough situation worse. SoLo borrowing is here to help you, not trap you,” the site mentions. “You set the terms of your loan. All fees in tips and donations are optional and voluntary. There’s no complex approval process to make a request.”

Investigation In Maryland

However, the business model of SoLo Funds has been put into question by the state of Maryland.

On Dec. 12, 2023, The Baltimore Sun reported that The Office of Financial Regulation issued SoLo and CEO Travis Holoway a cease and desist order.

As a result, the company is not allowed to offer its products in Maryland until it is determined whether or not the platform charges higher interest rates and late fees without sharing the details regarding finance charges, the outlet reports.

“When you drive innovation, that means there may not be specific laws that regulate what you do, but that doesn’t mean it’s not the right thing for the consumer,” Williams said, according to The Baltimore Sun.

The outlet reports that state regulators claim SoLo Funds engaged in unlicensed activity as a credit services business and collection agency and was not registered as a consumer reporting agency.

Regulators also allege that these interest rates are masked as “tips,” a practice that Williams defends as commonly accepted in the service industry, according to the outlet. He states that tips are not sent to SoLo but to members of the platform.

“As always, SoLo is committed to addressing any questions or concerns from regulators, and to making sure its business model is understood,” Collin Schwartz, SoLo’s general counsel, said in a statement provided to AFROTECH.

Resolved Cases In Other States

Still, the business model of SoLo Funds has also prompted other investigations across several states including California, Connecticut, and Washington, D.C., with the latter allowing the company to resume operations after reaching an agreement, according to several press releases.

The Baltimore Sun notes that in previous complaints, the company paid some penalties but did not admit to any wrongdoing. Additionally, the company agreed to be transparent in stating that donations and tips were optional, which is currently reflected on its website.

“When I joined this company, SoLo was facing regulatory scrutiny based on fundamental misunderstandings about our mission and business model,” said Kyle George, who leads SoLo Funds’ regulatory affairs, in a news release in May 2023. “Over the past few months, we’ve worked closely with lawmakers, state regulators, and attorneys general to educate them about what we do, to seek resolutions.”

Results In The Numbers

SoLo Funds boasts more than one million registered users on the platform, earning the distinction of becoming the first Black-owned personal finance platform to do so, as AFROTECH previously reported. Per the company, 82% of its users are in underserved zip codes.

By February 2023, it also shared that 600,000 loans had been funded with over $300 million in transaction volume. Most recent data shown on the company’s website lists 1,047,569 disbursements with an average funding time of 20 minutes.

press release provided to AFROTECH states Solo Funds’ “users have delivered over $275 million directly to underbanked communities by funding over 1 million requests for everyday necessities.”

The company claims that users have saved $30 million in fees in comparison to subprime credit cards.