Opportunity’s candidacy for the banking charter meets resistance
Several consumer groups are opposing Opportun Financial’s bid for a national banking charter, citing concerns about the company’s lending and debt collection practices.
Many of these issues have come to light a ProPublica survey over the summer, which focused on the high proportion of collection lawsuits the online lender has filed in recent years and its high proportion of repeat borrowers. Timely charges high interest rates, rolls over too much debt and was too quick to sue borrowers when they were late on payments, community groups wrote in letters of comment to the Comptroller’s Office. change.
The company’s claim also does not have a sufficient community reinvestment law plan, several groups wrote.
The nonprofit Woodstock Institute has questioned whether the San Carlos, Calif., Company deserves its federal designation as a community development financial institution. If the OCC approves the charter request of Opportunity, at the very least, it should demand that the company strengthen its community reinvestment plan, said Horacio Mendez, president and CEO of the Woodstock Institute.
“I would say no to demand based on their past transactions, predatory pricing, lawsuits to intimidate, regular borrowers,” he told American Banker. “If this was a mainstream financial institution, we would continue to protest against this.”
Oportun insisted that he is cleaning up some questionable practices and is ready to listen to criticism.
“The public comment period is an important part of this process,” a company spokesperson said in a statement. “As we move into the next phase of our enforcement, we look forward to working with regulators and other stakeholders to assess the feedback.”
In August, the nonprofit ProPublica and the Texas Tribune published an investigative article focusing on Opportunity’s debt collection practices. According to the story, Oportun had 47,000 lawsuits in the state of Texas between May 2016 and July of this year. He said the lender deposited 10,000 in 2020, more than half of which after the World Health Organization declared the coronavirus pandemic in March.
Timely says he has dealt with many of these issues on his own before. He followed a promise made in july to dismiss all of its pending collection lawsuits and has not filed any new lawsuits since then, the company said. Oportun also said he is working with his borrowers and has enrolled more than 112,000 of his approximately 624,000 active clients in hardship deferral programs since the start of the COVID-19 pandemic.
The company said most customers who signed up for trouble support have returned to normal payment as well. In a presentation of the third quarter results, the company said emergency hardship carryforwards fell to 1% of balances as of Oct.31, from 1.5% as of Sept.30 and 5% as of June 30.
Oportun applied for a banking charter in November after achieving success with other fintech lenders such as SoFi and Varo Money. SoFi requested a charter in July and received preliminary conditional approval in October. Varo officially received its national banking charter in July.
If its request is approved, Oportun says it will offer checking accounts, savings accounts and certificates of deposit across the country. It also plans to expand its lending products – such as credit cards, auto loans, and personal installment loans – nationwide.
Unlike Varo and SoFi, however, Oportun specializes in lending to low and moderate income borrowers and borrowers with thin credit records. The company was founded in 2005 and originally focused on lending to Spanish-speaking borrowers, although it has broadened its reach in recent years. Its flagship product is a personal loan ranging from $ 300 to $ 10,000.
Another crucial difference, Oportun also operates more than 300 retail offices in states such as Arizona, California, Nevada, Texas and Florida. If its application is approved, those sites would become loan production offices, rather than branches, the company said.
In July, the company committed to cap the rates on all of its credit products at an annual rate of 36%. Although he said his average APR was already 36%, the history of ProPublica and some consumer groups alleged that he charged up to 69.99% APR on loans made in Texas and in California.
And in addition to promising to dismiss all outstanding collections cases, he said he would file about 60% fewer cases when he eventually resumes collections. Even if Oportun were to file 60% fewer lawsuits, he would still be one of the most contentious debt collectors in Texas, according to the ProPublica story.
Several comment letters to the OCC addressed the allegations of this story, including the high rate of recurring borrowers, which critics say indicates Opportunity loans may not be affordable for investors. low income borrowers. ProPublica estimated that up to 80% of its portfolio could be attributable to repeat borrowers.
The Center for Responsible Lending and the California Reinvestment Coalition wrote in a joint letter that “Opportunity encourages and allows multiple refinancing, which is a sign of no cost. Repeated refinancing can represent a cycle of debt and borrowers can end up paying more interest than the principal. “
The Woodstock letter stated that “this cycle of indebtedness exacerbates the struggles of low- and middle-income borrowers and takes them further away from qualifying for mainstream financial services – the exact opposite of the intent behind the creation of CDFI and a common practice among predatory lenders. . “
Oportun went public last year, valuing its shares at $ 15 each in September 2019. Its share price rose to over $ 23 per share in January, then fell below $ 6 during pandemic lockdowns. in April. Its stock price closed at $ 19.22 on Tuesday.
Shortly before applying for a banking charter, Oportun announced that he would partner with MetaBank in Sioux Falls, SD, to offer personal loans outside of his footprint. The company has struggled to make a profit since its IPO due to a year-over-year drop in creations after the outbreak of the pandemic and increased spending. In the third quarter, it reported a net loss of $ 6 million, compared to net income of $ 10 million the year before. For the first nine months of 2020, it recorded a net loss of $ 53.6 million, compared to net income of $ 38.4 million for the same period in 2019.