DC Journal: California’s Crackdown on Consumer Credit Just Hit a Wall

Originally published at dcjournal.com on June 25, 2026.

Regulators and special-interest groups have spent years trying to rebrand bank-fintech partnerships as “rent-a-bank” schemes. The phrase is designed to do all the work: the partnership must be a ruse, the lender a fraud, the borrowers victims, and the state the rescuer.

Last month, that movement received a rebuke from Los Angeles County Superior Court Judge Gary D. Roberts. He rejected the California Department of Financial Protection and Innovation’s attempt to cut off credit to consumers and punish Opportunity Financial, better known as OppFi, for loans originated by its partner, Utah-based FinWise Bank. The state argued that consumers shouldn’t receive loans from OppFi because OppFi, not FinWise, was the “true lender” and thus subject to California’s interest rate caps, which preserve loans for people with high incomes and high credit scores. The court disagreed.

Originally published at dcjournal.com on June 25, 2026.

The bank originated and funded the loans, as reflected in their advertising and loan terms. The bank bore the risk and oversaw compliance. In other words: the lender was the lender.

In California, Judge Roberts asked for evidence. That is where the case fell apart. Because OppFi, as a vendor to FinWise, helped market, service and operate the lending platform, the Department of Financial Protection and Innovation asserted that OppFi should be treated as the lender. Unsurprisingly, this “true lender” theory is the only way a California regulator could assert authority over an out-of-state bank.

The real fight is about price controls and state overreach into a national credit market, and the playbook is familiar. First, political leaders declare that certain types of credit are too expensive. Then they cap the price. California’s AB 539, for example, limits rates on certain installment loans to 36 percent. Next, many lenders exit, while regulators accuse the remaining providers of exploiting loopholes as they and their fintech vendors continue to offer credit to borrowers the state has left stranded in a credit desert.

These legislative efforts are often promoted by people linked to lawyers who profit from complex lending laws. The trial attorneys receive in excess of 25 percent of settlement proceeds, which is part of why consumers typically receive only small payments from class-action cases. These groups include the National Consumer Law Center and the Center for Responsible Lending, among others, who launder this cash into lobbying efforts to pass additional confusing, complex legislation that sustains their lucrative feedback loop.

In 2025, the Federal Reserve Bank of New York examined what happened in three states that imposed such caps. The caps produced less credit, but only for the people who needed it most. Loan balances among riskier borrowers fell by $2,000 relative to comparable borrowers in states without caps, while delinquency did not improve. Credit to prime borrowers increased.

Price controls limit supply. When the supply of legal credit disappears, the need remains. Demand cannot be legislated away. The answer to that risk is better underwriting, not political price fixing.

Bank-fintech partnerships deserve something more serious than slogans and name-calling. Banks of all sizes have long partnered with technology companies to extend credit, improve underwriting, reduce friction, and reach the consumers that traditional banks often decline. Those consumers still need to repair a car, cover a medical bill, pay a utility bill, or absorb a gap between paychecks. Responsible lenders use these partnerships to draw on alternative data, fraud controls and broader reach, extending credit where conventional models say no.

A national credit market also requires national rules. Federal preemption exists because interstate banking cannot function if every state imposes its political preferences on lawful bank products. A bank cannot efficiently administer 50 theories on who the “real” lender is, 50 rate caps, and 50 enforcement regimes built on after-the-fact suspicion.

The court did what courts are supposed to do. It looked past the rhetoric and asked who made the loans. The answer was FinWise Bank. That should have ended the matter. Consumer protection is supposed to protect consumers. California’s theory would have protected them from the credit they sought, from the bank that lawfully made it, and from the technology that made it available. This is just prohibition with better branding.