State-level busy subprime lender avoids federal scrutiny


The payday lending industry is bracing for regulatory crackdown. One of its rivals is not.

The Federal Bureau of Consumer Financial Protection in June unveiled draft rules for short-term payday loans that charge triple-digit annual percentage rates. The rules would also cover many so-called installment loans that have longer repayment periods but still charge an annual rate above 36%.

Still, the nation’s largest subprime lender, OneMain Financial, may well avoid the new regulations. OneMain, which has about a half-dozen branches in the San Antonio area, caps its loans at 36% interest and would arguably gain an advantage from federal rules that hold back more expensive and aggressive competitors.

At the state level, the company can reap greater rewards.

OneMain lobbied for legislative changes in about eight states this year, records show, telling lawmakers the changes would help it serve additional borrowers. While OneMain does not currently lobby the Federal Consumer Agency, it regularly drafts laws introduced at the state level.

OneMain hasn’t won every battle, but it has already helped change laws this year in three of those states: Arizona, Florida, and Mississippi. Since 2012, when its lobbying campaign in earnest, OneMain has helped enact legislative changes in at least 10 states.

Collectively, these efforts underscore the extent of OneMain’s influence and, by extension, the influence of its private equity owner, Fortress Investment Group.

Fortress subprime lender Springleaf Financial acquired OneMain from Citigroup last year and took its name. In a front page article in July, The New York Times detailed Fortress’s expansion into subprime lending amid the growing influence of the private equity industry on Wall Street and Main Street.

Although the Times article focused on Springleaf, now OneMain, efforts to increase borrower costs, the lender recently expanded its legislative agenda. In some states, the lender has requested permission to pay other businesses what is known as a referral fee, to send business as it sees fit. Another successful bill this year allowed the company to offer new types of insurance policies in addition to its loans, including coverage for accidental death and dismemberment, an important area for OneMain.

In a statement, OneMain argued that his successes were not particularly sweeping, noting that he had lost in a handful of states. When it won, the company said, the bills changed outdated laws and leveled the playing field with online lenders not subject to the same state laws. And if it hadn’t been able to raise costs, OneMain said, its branches would have closed, leaving borrowers with few options outside of higher-cost lenders.

OneMain isn’t the only consumer lender to tour state capitals, either. In a year when some state legislatures such as Texas did not meet and others only met briefly, this lobbying has raised concerns among consumer advocates.

“These bills were popping up all over the place,” said Diane Standaert, director of state policy at the Center for Responsible Lending, adding that they “were intended to loosen state laws that protect people from lending to. high cost”.

State regulation is important, she said, because no federal regulator directly examines OneMain and its fellow installment lenders except to bring enforcement actions for violations of the law.

The new Consumer Financial Protection Bureau rules would impose additional oversight on the industry, but not all lenders.

The proposed rules, which could be revised after a public comment period and could require lenders to verify borrowers are able to repay, will trap payday loans and some types of installment loans. To be covered by the rule, an installment loan must bear a rate greater than 36%, including insurance fees and charges, and either quickly take the borrower’s car title as collateral or access the account. borrower’s bank to collect payment.

“Relatively few” OneMain loans will fall into these categories, according to a report from Credit Suisse. On the one hand, OneMain already assesses the repayment capacity of a borrower. And although OneMain offers some loans that cost more than 36% – once premiums for insurance products are included – only “a minority” of these loans require access to a borrower’s bank account, and even so , this is an optional feature.

To avoid the rule in these cases, OneMain could either delay accessing these borrowers’ accounts or cut costs slightly. Either way, the rules will have little effect on the lender, even if they jeopardize the profits of more aggressive rivals.

The difference between payday loans and installment loans may seem insignificant, but there are some important distinctions.

Installment loans are larger and last longer than payday loans, which typically cost a few hundred dollars and are due on the borrower’s next payday. Payday loans typically have an annual percentage rate of around 390%, although installment loan rates can reach triple digits as well. The average OneMain loan totals around $ 6,093 and carries an interest rate of 26%, plus fees.

“The proposed rules address common practices in a different segment of the consumer credit market,” OneMain said in its statement. “Our responsible, fully amortizing, fixed rate, fixed payment loans do not create ‘debt traps’. “

Yet OneMain is not entirely clear. The consumer agency intends to eventually oversee large installment lenders such as OneMain. And in addition to its high-cost loan proposal, the agency is soliciting information on “long-term, high-cost installment loans” that do not involve car titles or access to a bank account.

OneMain has not publicly weighed in on the federal proposal, but has been busy at the state level. In many states, OneMain, and previously Springleaf, have benefited from the meager resources of lawmakers, who typically work part-time and lack financial expertise.

John Anderson, executive vice president of OneMain, had said that “if you want something done you sometimes have to write the first draft yourself”, although “it is unusual for the legislation we are proposing to be enacted. verbatim ”.

In Arizona, Springleaf pushed a bill two years ago that doubled the maximum origination fee from $ 75 to $ 150, and applied the state’s maximum rate of 36% to more loans. .

The legislation has sparked concern from the Arizona Financial Regulator, which, in an email reviewed by The Times, told a Springleaf lobbyist: “

The bill was passed anyway, with the exception of a few concessions. In one, Springleaf agreed to lawmakers removing a section that would have allowed it to compensate companies that refer cases to it.

But that wasn’t the end of Springleaf’s referral fee plan. After responding to some concerns from policymakers, Springleaf this year proposed a new bill that removed Arizona’s ban on “paying a fee, commission, or bonus” to anyone referring borrowers to lenders. such as Springleaf.

State Representative Debbie McCune Davis, a Democrat who led the opposition, called the removal charges a “bribe.”

Still, Springleaf and OneMain, which note that referral fees are common in the lending industry, helped pass referral fee legislation this year in Florida and Mississippi. And in Arizona, the lender didn’t stop with the referral fee.

Arizona’s bill also allowed lenders to expand the types of insurance policies they can sell alongside loans. In addition to life insurance and other products, the bill authorized the lender to offer accidental death and dismemberment insurance and disability income protection.

New insurance products like these could have an added bonus. Unlike some traditional OneMain insurance products, these policies may not count towards the 36% of costs that fall under the consumer agency rules.

OneMain lobbyists, who also backed an insurance bill in California this year, have assured lawmakers the policies are optional. It also reimburses premiums if borrowers cancel policies within 30 days, allaying the concerns of some lawmakers.

Yet OneMain has not won all of its legislative battles. In Colorado this year, a OneMain bill that would have increased costs for borrowers stalled at the committee level, a year after a similar bill was opposed.

Shortly after State Representative Jovan Melton, a Democrat, introduced the first bill, he wrote a letter to fellow lawmakers, emails say, prompting a Springleaf lobbyist to point out to a colleague that “Jovan is the best”.

The lobbyist also helped Melton draft a letter to Governor John Hickenlooper. Melton, who did not respond to requests for comment, sent the lobbyist an amended version, saying, “Here is the return letter with my review on the header. Did you want to send it to the government office or to me? “

Hickenlooper, a Democrat, vetoed the bill that would have relaxed the requirements.

“I was not against pushing them back a bit,” he said. “That’s just the level they showed up to, it looked like it was going to be outrageously onerous.”


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