Several consumer advocacy groups are opposing Oportun Financial’s application for a national bank charter, citing concerns about the company’s lending and debt-collection practices.
Many of those issues came to light in
The company’s application also lacks a sufficient Community Reinvestment Act plan, several of the groups wrote.
The nonprofit Woodstock Institute questioned whether the San Carlos, Calif., company deserves its federal designation as a community development financial institution. If the OCC approves Oportun’s charter application, at the very least it ought to demand the company beef up its community reinvestment plan, said Horacio Mendez, president and CEO of the Woodstock Institute.
“I would say no to the application based on their prior transactions, the predatory pricing, the sue-to-intimidate, the repeat borrowers,” he told American Banker. “If they were a conventional financial institution, we would still be protesting this.”
Oportun has insisted that it is cleaning up certain questionable practices and it’s willing to listen to criticism.
“The public comment period is an important part of this process,” a company spokesman said in a statement. “As we enter the next phase of our application, we look forward to working with the regulators and other stakeholders to evaluate any comments.”
In August, the nonprofit news outlet ProPublica and the Texas Tribune published an investigative piece focusing on Oportun’s debt-collection practices. According to the story, Oportun had filed 47,000 lawsuits in the state of Texas between May 2016 and July of this year. It said the lender had filed 10,000 of them in 2020, with more than half of those happening after World Health Organization declared the coronavirus pandemic in March.
Oportun says it has already dealt with many of those issues on its own. It has followed through on
The company said that most of the customers enrolled in hardship assistance have returned to normal payment, too. In a third-quarter earnings presentation, the company said emergency hardship deferrals had declined to 1% of balances by Oct. 31 from 1.5% at Sept. 30 and 5% at June 30.
Oportun applied for a bank charter in November after successful applications by other fintech lenders such as SoFi and Varo Money. SoFi
If its application is approved, Oportun says it will offer checking accounts, savings accounts and certificates of deposit nationwide. 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 files. The company was founded in 2005 and originally focused on lending to Spanish-speaking borrowers, though it has broadened its focus in recent years. Its signature product is a personal loan ranging from $300 to $10,000.
In another crucial difference, Oportun also operates more than 300 retail offices in states like Arizona, California, Nevada, Texas and Florida. If its application is approved, those locations would become loan production offices, rather than branches, the company has said.
In July, the company pledged to cap rates on all of its credit products at an annual percentage rate of 36%. Though it said its average APR was already 36%, the ProPublica story and some consumer groups have alleged that it has charged as much as 69.99% APR on loans made in Texas and California.
And besides promising to dismiss all pending collections cases, it said it would file about 60% fewer cases when it does eventually resume collections. Even if Oportun did file 60% fewer collections suits, it would still be one of the most litigious debt collectors in Texas, ProPublica’s story said.
Several comment letters to the OCC touched on the allegations in that story, including the high incidence of repeat borrowers, which critics say indicates that Oportun’s loans may not be affordable to low-income borrowers. ProPublica estimated that as much as 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 “Oportun encourages and enables multiple refinances, which is an indication of unaffordability. Repeat refinances can amount to a cycle of debt and borrowers may end up paying more interest than the principal.”
Woodstock’s letter said that “this cycle of indebtedness exacerbates the struggles of low- and moderate-income borrowers and pushes them further away from qualifying for conventional financial services — the exact opposite of the intent behind the creation of CDFIs and a common practice among predatory lenders.”
Oportun went public last year, pricing its shares at $15 each in September 2019. Its stock price rose to more than $23 per share in January and then tumbled to less than $6 during the pandemic lockdowns in April. Its share price closed at $19.22 on Tuesday.
Shortly before it applied for a bank charter, Oportun announced it would partner with MetaBank in Sioux Falls, S.D., to offer personal loans outside of its footprint. The company has struggled to turn a profit since going public due to a year-over-year decline in originations after the pandemic hit and rising expenses. In the third quarter it reported a net loss of $6 million, compared with net income of $10 million the prior year. For the first nine months of 2020, it reported a net loss of $53.6 million, compared with net income of $38.4 million for the same period in 2019.
