Subprime Lender, Busy at State Level, Avoids Federal Scrutiny

By BEN PROTESS
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Diane Standaert, director of state policy for the Center for Responsible Lending, said bills aimed at loosening state laws that protect consumers from high-cost lending “were popping up all over the place.” Credit Alex Boerner for The New York Times       


The payday lending industry is bracing for a regulatory crackdown. One of its rivals is not.
 
The federal Consumer Financial Protection Bureau unveiled proposed rules in June that take aim at short-term payday loans charging triple-digit annual percentage rates. The rules also would cover many so-called installment loans that have longer repayment periods but still charge an annual rate higher than 36 percent.
 
Yet the nation’s largest subprime installment lender, OneMain Financial, may well avoid the new regulation. OneMain caps its loans at 36 percent interest and would arguably gain an advantage from federal rules that rein in its higher-cost and more aggressive competitors.
 
On the state level, the company may reap greater rewards.
 
OneMain pressed for legislative changes in about eight states this year, records show, telling lawmakers that the changes would help it serve additional borrowers. Although OneMain is not currently lobbying the federal consumer agency, it regularly writes legislation introduced at the state level.
 
OneMain did not win every battle, but it already helped change laws this year in three of those states: Arizona, Mississippi and Florida. Since 2012, when its lobbying campaign began in earnest, OneMain has helped enact legislative changes in at least 10 states.
 
Collectively, these efforts underscore the breadth of OneMain’s influence, and by extension, the influence of its private equity owner, the Fortress Investment Group.
 
Fortress’s 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 in subprime lending as part of the private equity industry’s growing sway on Wall Street and Main Street alike.
 
Although The Times’s article focused on the efforts of Springleaf, now OneMain, to raise costs on borrowers, the lender recently broadened its legislative agenda. In some states, the lender sought permission to pay other companies what is known as a referral fee, for sending business its way.
 
Another successful bill this year enabled the company to offer new types of insurance policies alongside its loans, including accidental death and dismemberment coverage, an important area for OneMain.
 
In a statement, OneMain argued that its successes were not particularly sweeping, noting that it lost in a handful of states. When it did win, the company said, these bills modified outdated laws and leveled the playing field with online lenders not subject to the same state laws. And if it had not been able to raise costs, OneMain said, its branches would have closed, leaving borrowers with few options aside from higher-cost lenders.

OneMain is also not the only consumer lender making the rounds of state capitals. In a year when some state legislatures did not meet and others gathered only briefly, this lobbying raised concerns among consumer advocates.
 
State regulation is important, she said, because no federal regulator directly examines OneMain and its fellow installment lenders, other than to file enforcement actions for legal violations.
The Consumer Financial Protection Bureau’s new rules would impose additional oversight on the industry, but not for every lender.
 
The proposed rules, which could be revised after a public comment period and may require lenders to verify that borrowers are able to repay, will ensnare payday loans and certain types of installment loans. To be covered by the rule, an installment loan must carry a rate higher than 36 percent, including fees and insurance charges, and either promptly take the borrower’s car title as collateral or gain access to the borrower’s bank account to collect payment.
 
“Relatively few” OneMain loans will fall into those categories, according to a report by Credit Suisse. For one thing, OneMain already evaluates a borrower’s ability to repay. And although OneMain does offer some loans whose costs exceed 36 percent — once premiums for insurance products are included — only “a minority” of those loans call for access to a borrower’s bank account, and even then it is an optional feature.
 
To avoid the rule in those instances, OneMain could either delay gaining access to these borrowers’ accounts, or lower the costs ever so slightly. Either way, the rules will have little impact on the lender, even as it puts a crimp in the profits of more aggressive rivals.
 
The difference between payday and installment loans can seem trivial, but there are important distinctions. Installment loans are larger and last longer than payday loans, which are generally for a few hundred dollars and are due on the borrower’s next payday. Payday loans typically have an annual percentage rate of around 390 percent, though installment loan rates can reach triple digits as well. The average OneMain loan totals about $6,093 and carries an interest rate of 26 percent, plus fees.
 
“The proposed rules address practices common in a different segment of the consumer finance market,” OneMain said in its statement. “Our responsible, fully amortizing, fixed-rate, fixed-payment loans do not result in ‘debt traps.’”
Still, OneMain is not totally in the clear. The consumer agency has plans to supervise large installment lenders like OneMain eventually. And in addition to its proposal for high-cost loans, the agency is soliciting information about “high-cost, longer-duration installment loans” that do not involve car titles or bank account access.
 
OneMain has not publicly weighed in on the federal proposal, but it has been busy at the state level.
 
In many states, OneMain, and previously Springleaf, benefited from the scarce resources of legislators, who typically work part time and lack financial expertise.
 
John Anderson, an executive vice president at OneMain, had said that “if you want something done, you sometimes have to write the first draft yourself,” though “it is unusual for legislation we propose to be enacted verbatim.”
 
In Arizona, Springleaf pushed draft legislation two years ago that doubled the maximum origination fee, to $150 from $75, and applied the state’s maximum 36 percent rate to a greater number of loans.
 
The legislation drew concern from Arizona’s financial regulatory agency, which in an email reviewed by The Times told a Springleaf lobbyist, “We have not seen a willingness to address the concerns stated, nor the research and information that may validate the arguments you’ve made.”
 
The bill passed anyway, save for a few concessions. In one, Springleaf agreed to have lawmakers withdraw a section that would have allowed it to compensate companies that refer business to it.
 
But that was not the end of Springleaf’s referral-fee plan. After addressing some concerns from policy makers, Springleaf this year proposed a new bill that removed Arizona’s prohibition on “paying a fee, commission or bonus” to anyone referring borrowers to lenders like Springleaf.
 
Representative Debbie McCune Davis, an Arizona Democrat who led the opposition, called the referral fee a “kickback.”
 
The Arizona bill also allowed lenders to expand the types of insurance policies it can sell alongside loans. In addition to life insurance and other products, the bill permitted 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 of OneMain’s traditional insurance products, these policies might not be counted toward the 36 percent costs that fall under the consumer agency’s rules.
 
OneMain’s lobbyists, who also supported an insurance bill in California this year, have assured lawmakers that the policies are optional. It also refunds premiums if borrowers cancel policies within 30 days, assuaging some lawmakers’ concerns.
 
Still, OneMain has not won all its legislative battles. In Colorado this year, a OneMain bill stalled in committee that would have increased costs on borrowers, a year after a similar bill was vetoed.
 
Soon after Representative Jovan Melton, a Democrat, introduced the first bill, he drafted a letter to fellow lawmakers, emails show, prompting a Springleaf lobbyist to remark to a colleague that “Jovan is the best.”
 
The lobbyist also helped Mr. Melton draft a letter to Gov. John Hickenlooper. Mr. Melton, who did not respond to requests for comment, sent the lobbyist an edited version, saying: “Here is the letter back with my revision on letter head. Did you want to send it to the Gov’s Office or me?”
 
Governor Hickenlooper, a Democrat, vetoed the bill that would have loosened the requirements.
 
“I wasn’t against rolling them back somewhat,” he said in an interview. “It’s just the level at which they presented, it seemed like it was going to be excessively onerous.”

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