OAKLAND, Calif. (CN) — An online lending startup that has grown exponentially in recent years cannot avoid a class action claiming it wrongly denied loans and other services to certain noncitizens based on their immigration status, a federal judge ruled Monday.
San Francisco-based startup Social Finance Inc., or SoFi, is a peer-to-peer financial technology company that cuts the middleman out of student and personal loans. It was founded in 2011 by four Stanford University business school graduates. The 10-year-old firm has raised more than $2 billion in capital in recent years and was valued at $4.3 billion by one of its largest investors in 2019.
But last year SoFi was hit with a federal class action claiming it has violated multiple state and federal laws over the last decade by wrongly denying credit to people who are not U.S. citizens or legal permanent residents.
Lead plaintiff Ruben Juarez, an immigrant enrolled in the Deferred Action for Childhood Arrivals (DACA) program, applied to refinance his student loans on SoFi's website in 2016. After answering a question about his immigration status, Juarez was unable to complete or submit his application. He made further attempts to apply over the next three years but was told each time that his immigration status made him ineligible, according to the lawsuit he filed in May 2020.
This past July, another immigrant who was denied credit services by SoFi joined the lawsuit. Calin Constantin Segarceanu, a Romanian national who is married to a U.S. citizen and holds a green card that expires after two years, applied for a personal loan with SoFi in June 2020. His application was denied based on his status as a conditional permanent resident, according to an amended class action complaint. Segarceanu also claims SoFi accessed his credit report without permission.
In a 17-page ruling issued Monday, U.S. District Judge Hawyood Gilliam rejected SoFi’s motion to compel arbitration and denied its motion to dismiss the lawsuit, except for one claim related to a California civil rights law.
SoFi argued that Juarez’s claim must be resolved through private arbitration because he checked a box agreeing to that condition when he signed up for an online account in 2016. But Gilliam found the scope of that agreement was limited to Juarez’s 2016 application and did not apply to his subsequent attempts to apply for credit in 2017, 2018 and 2019.
SoFI’s position that the arbitration contract “extends in perpetuity to all future registrations, submissions, or applications is simply not supported by the plain language of the agreement,” Gilliam wrote.
Gilliam also rejected SoFi’s request to forbid Juarez and Segarceanu from representing a class of all people denied credit services based on their immigration status since the two plaintiffs only applied for two specific types of credit: student loan refinancing and a personal loan. Gilliam said those questions should be resolved when the plaintiffs file a motion for class certification.
On claims that it violated the U.S. Equal Credit Opportunity Act, SoFi cited a Consumer Financial Protection Bureau regulation that states a “creditor may inquire about the permanent residency and immigration status of an applicant or any other person in connection with a credit transaction.”
Gilliam said he has serious questions about whether that regulation is consistent with he law. He denied SoFi’s motion to dismiss on that basis but said the issue could still be raised again at a later stage of litigation.
Turning to Segarceanu’s claims that SoFi accessed his credit report without consent, Gilliam said he was not convinced by SoFI’s argument that it had a “permissible purpose” to pull up the credit information because Segarceanu was applying for a loan. Segarceanu claims SoFi should have already known he was ineligible for the loan when he provided his immigration status information. Because he was ineligible, pulling his credit report served no purpose, he argued.
Both sides dispute SoFi’s knowledge about Segarceanu’s eligibility for a loan at the time his credit report was pulled, but Gilliam said he must accept the plaintiffs' allegations as true in this early phase of litigation.
The judge found the plaintiffs “sufficiently alleged that Mr. Segarceanu’s credit report could not have been ‘in connection with a credit transaction involving the consumer’ and there was not ‘a legitimate business need’ to obtain his credit report.”
SoFi did come away with one small victory from Gilliam’s ruling Monday. The judge dismissed claims that the company violated California’s Unruh Civil Rights Act because neither Juarez and Segarceanu live in California and they applied for credit outside the state.
Juarez and Segarceanu insisted that state law still applies because SoFi allegedly “developed and implemented” its polices on lending to immigrants in California. But Gilliam said the plaintiffs offered no support to back up that assertion.
“Plaintiffs have failed to allege facts sufficient to plausibly suggest that the discriminatory conduct at issue in this case occurred in California,” Gilliam wrote.
The judge gave the plaintiffs 21 days to file an amended complaint that addresses those flaws.
Attorneys for SoFi and the proposed class of noncitizens who were denied credit did not immediately return emails requesting comment Monday.
The plaintiffs are represented by Moira Heiges-Goepfert of Outten & Golden LLP.
Attorney Jamie Danielle Wells of McGuireWoods represents SoFi.
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