A federal judge in California approved a $2.4 million settlement in a class-action lawsuit against Social Finance, a San Francisco-based online lender.
The lawsuit, brought on behalf of more than 10,000 consumers, alleged that SoFi violated federal and state credit reporting and business laws by running "hard" inquiries on credit reports. Those inquiries can harm consumers' credit scores.
Judge Thelton Henderson's order approving the settlement was filed Tuesday in U.S. District Court for the northern district of California.
As part of the settlement, the plaintiffs' attorneys will receive a $673,035 cut of the proceeds. Plaintiffs Shawn Heaton and Anna Ahlborn, who reached the settlement agreement in April, were awarded $7,000 and $3,000, respectively.
The settlement agreement stated that each class member was expected to receive approximately $164.
According to the lawsuit, SoFi made hard credit inquires related to student loan refinancing or personal loan applications between November 2013 and August 2014.
Hard inquiries are usually initiated when consumers enter into borrowing transactions, rather than just filing an initial application, and are visible to third parties who obtain a consumer credit report.
Each "hard pull," as they are also called, can lead to a maximum five-point credit score reduction. Conversely, a "soft pull" is visible only to the consumer and has no impact on credit scores.
"Creditors often use the number of hard inquiries on a consumer's credit report as a basis to deny an extension of credit," the lawsuit stated.
According to the complaint, SoFi "falsely" represented to prospective borrowers that it would only conduct soft inquiries into the prospective borrower's credit, and credit scores would not be impacted. However, Sofi instead performed a hard credit pull that "adversely affects the potential borrower's credit score," the complaint says.
SoFi did not respond to a request for comment Thursday.
The class-action lawsuit was filed under the federal Fair Credit Reporting Act, the California Consumer Credit Reporting Agencies Act and the California Unfair Competition Law.