December 21, 2020
Western District Office
Director for District Licensing
1225 17th Street
Suite 300
Denver, CO 80202
WE.licensing@occ.treas.org
RE: Oportun Charter Application, 2020-WE-Charter-317993
To Whom it May Concern:
The National Community Reinvestment Coalition (NCRC) appreciates the opportunity to comment on Oportun’s application for a national bank charter. We request that the OCC extend the comment period for this application by 30 days to address numerous Community Reinvestment plan, loan pricing and debt collection practices raised by this application. Until these outstanding issues are addressed, we believe that the OCC does not have sufficient information to approve this application.
NCRC is a coalition of community-based organizations, fair lending advocates, counseling organizations and small business technical assistance providers that collaborate with financial institutions in increasing access to credit and capital for underserved communities.
As a Community Development Financial Institution (CDFI) focused on serving low-and-moderate-income (LMI) borrowers and people of color with consumer loans, Oportun has the responsibility to lead the market in responsible reinvestment, pricing and debt collection practices. Our review of Oportun’s application suggests that there are outstanding questions related to the company’s loan pricing practices, particularly for larger, longer-term loans, and a well-documented pattern of concerning debt collection practices that fall short of the expectations of a CDFI, and certainly a CDFI seeking a national bank charter.
Taken together, we believe that this application should only be approved with changes to express a clear commitment to:
- Designate assessment areas in additional states that contain at least 75% of the company’s lending activity;
- Provide more details regarding goals and performance measures for its CRA objectives;
- Ensure public participation in the development of a CRA strategic plan that addresses the gaps in the existing CRA plan and addresses debt collection, pricing, and fair lending concerns;
- Address widespread concerns about aggressive debt collection practices;
- Commit to adjusting the pricing on larger, longer-term loans consistent with rates caps in place for longer-term installment loans in most states.
I. Designate assessment areas in additional states that contain at least 75% of the company’s lending activity.
A) Provide more detail on the goals and performance measures in SRAs and ensure that assessment areas reflect the communities where Oportun has retail locations.
As a non-depository CDFI, Oportun does not have the typical branch network that is used to determine CRA assessment areas. NCRC is encouraged that Oportun has proposed the creation of assessment areas and supplemental review areas (SRAs) that include their retail outlets/loan production offices and that encompass urban areas, smaller metropolitan areas and rural areas.
Oportun should further explain what it means by an SRA and whether goals and performance measures would be as rigorous for the SRAs as they would be in a formal assessment area of the San Francisco-Oakland-Berkeley metropolitan area.
Oportun proposes the following SRAs:
- Los Angeles-Long Beach-Santa Ana, CA MSA;
- Houston-Sugar Land-Baytown, TX MSA;
- Miami-Dade, FL MSA;
- Dallas Texas, MSA
- Chicago-Joliet-Naperville, IL-IN-WI, MSA
- Bakersfield-Delano, CA, MSA
Oportun’s website lists Arizona, New Jersey, New Mexico, Nevada and Utah as additional states with retail locations that do not have any proposed SRAs.[1] Smaller metropolitan areas and rural counties as well as larger metropolitan areas should be candidates for additional SRAs in these states.
B) Oportun’s loan volume justifies assessment areas that encompass at least 75% of its lending activity, consistent with the coverage rate of similar banks.
In total, the AAs and SRAs include 56% of Oportun’s retail lending. Usually, non-bank applicants have only proposed their headquarters location as an assessment area. NCRC believes that a great majority of retail lending approaching 75% or higher should be covered by assessment areas. NCRC has found in previous research that the top 100 banks routinely have approximately 90% of their loans included in their assessment areas.[2]Oportun’s loan volume (about 260,000 loans per year) would be comparable to those of the top tier banks examined by NCRC, suggesting that an assessment area coverage rate of 75% is reasonable and consistent with current expectations.[3]
II. Provide more details regarding goals and performance measures for its CRA objectives.
Oportun proposes to be considered a large bank with assets in excess of $2.5 billion for purposes of developing its strategic plan. We applaud the company for its commitment to seek an Outstanding rating on its strategic plan but believe the application should be amended to describe how that rating will be achieved.[4]
A. Retail Lending
As a bank, Oportun proposes to offer personal unsecured consumer loans, automobile refinance loans, personal loans secured by automobiles, and credit cards at its retail locations or via mobile and on-line channels and the services will be available in English and Spanish.[5]
NCRC urges Oportun to describe specific goals for a few key products so the public can better judge whether Oportun will meet the convenience and needs of communities. For other products, Oportun should describe performance measures and benchmarks. For example, will Oportun establish goals based on the percent of automobile loans to LMI consumers and will it compare its performance against peers (CDFIs and other institutions) and demographics (percent of the population that is LMI) in its AAs and SRAs? Will it commit to offering a higher percentage of loans to LMI consumers than its peers? What will it commit to in relation to demographic benchmarks? Only with these scoring methodologies described can the public judge the adequacy of Oportun’s plans.
Based on the information in the application, Oportun should be in a good position to develop these performance measures and should excel at meeting and exceeding its goals for Outstanding on its strategic plan. For instance, Oportun states that the median income of its borrowers is $46,000 and documents that 89% of its borrowers reside in LMI tracts.[6]
B. Community development financing
Oportun’s plan for community development financing is vague in terms of either specific goals or the intended methodology for setting those goals. Oportun states that “a strong ratio of community development lending in relation to its deposit base” will be a principle for its strategic plan.[7] Again, the public needs more details to judge the adequacy of this aspiration. Will Oportun compare its ratio to peers of similar asset sizes and business models? Will Oportun calculate these ratios for its AAs as well as an institution-wide?
Oportun touts its financial education initiatives, its priority of collaborating with organizations that serve LMI and communities of color, and its loans to CDFIs. While commendable, more detail on comparisons of philanthropic contributions to peers would help the public judge the adequacy of Oportun’s grant levels. Oportun also states that employees would devote 1% of their time to support nonprofit organizations.[8] Again, this should be converted into a goal overall and for each AA and expressed as hours per employee with comparisons to peers.
C. Deposits
Oportun states that it will collect on-line deposits nationwide. It states that it hopes that it will succeed in helping the unbanked and under-banked gain access to banking.[9] While laudatory, the application is short on specific mechanisms for this goal. An all-virtual approach to unbanked populations is unlikely to generate high volumes of business with them. Oportun should be more specific regarding how it will conduct outreach in underserved communities and how it would make deposit products affordable and attractive for unbanked and underbanked populations.
D. Fair lending
Oportun implies that its proprietary credit underwriting model helps it expand its lending to LMI customers and communities.[10] This credit model should be further explained in a fair lending section with detail about how it will avoid disparate impacts to protected classes and more detail on how it will increase affordable and sustainable lending to customers with thin or no credit history.
III. Ensure public participation in the development of a CRA strategic plan that addresses the gaps in the existing CRA plan and addresses debt collection, pricing and fair lending concerns.
Per the CRA regulatory requirements, Oportun must provide the public with opportunities to comment informally and formally on its proposed strategic plan. In particular, we encourage Oportun to reach out to community-based organizations in Texas and California that have worked with clients which Oportun took to small claims court. Since CRA examiners have considered qualitative factors such as innovation and flexibility on the component tests including the lending test, we ask Oportun to commit to product features that result in affordable, sustainable, and responsible consumer lending. These product features should be described clearly in the strategic plan. In contrast, if consumer lending by a bank with a newly approved charter was high cost and resulted in a high volume of defaults and court cases, this lending would violate the intent and purpose of CRA that ensures community credit needs are met in a responsible fashion. In addition, the strategic plan should address the issues NCRC raises immediately above concerning the lending test, community development financing and deposits.
IV. Address widespread concerns about aggressive debt collection practices.
A joint investigation by the Texas Tribune and ProPublica identified Oportun as the most litigious consumer finance company in Texas, and the number one filer in small claims courts in both Texas and California. In addition to high rates, and repeat refinances, these debt collection practices raise serious consumer protection concerns. We appreciate the company’s commitment to reducing the volume of lawsuits by 60%, however, even with a reduction of that magnitude, the Texas Tribune and ProPublica found that Oportun would still be in the top tier of lawsuit filers against debtors in Texas even if the number of claims was reduced by 60%.[11] Filing cases at this volume often without the intent to litigate the case puts undue strain on the legal system and has an intimidating effect on the people being sued, particularly in states where small claims court rules prevent access to an attorney or an interpreter.
To address these concerns, we believe that the following debt collection practices actions must be taken prior to charter approval:
- Engage with consumer and community groups to identify the extent of the harm caused by existing practices and determine how to address them in a timely and collaborative manner.
- Dismiss existing lawsuits and reframe from the aggressive use of the court system to collect outstanding debt.
- Commit to a substantial reduction in debt collection filings beyond the existing commitment to reduce filings by 60%.
- When the courts are used on a limited basis as a collection method of last resort, we urge Oportun to ensure that its customers are able to access to legal counsel and interpreter services, as needed.
- Remove forced arbitration clauses in the company’s consumer loan agreements and refrain from using them in future contracts.
- Provide forbearance or other debt cancellation options during the course of the pandemic and ensure that borrower credit reports for new, existing and previously charged-off loans are not impacted. In general, engage in forbearance before resorting to the courts.
V. Commit to adjusting the pricing on larger, longer-term loans consistent with rates caps in place for longer-term installment loans in most states.
While Oportun has committed to lending at rates below an all-in APR of 36% for all of its loan products, it is important to note that these rates exceed the interest rate caps for $2,000 two-year installment loans in 23 states and the District of Columbia, and exceed the interest rate caps for larger, longer-term loans in 30 states and the District of Columbia.
As a CDFI, Oportun should not seek to use its national bank charter to issue loans that exceed state interest rate caps, particularly for larger, longer-term loans. While we are encouraged that the company has attempted to address the high-cost of many of its loan products by voluntarily adopting an all-in 36% APR, even this rate drastically exceeds many state interest rate caps for larger, longer term loans. We urge a commitment to reducing interest rate for these loans to the cap in place for larger, longer-term loans in most states. A rate of 36% is acceptable for smaller-size loans, but out of step with state limits for larger-size loans.
A. A 36% all-in rate cap is an improvement over rates charged for very-short term loans in states without interest rate limits, but exceeds the maximum permissible rate for larger, longer-term loans in many states.
Oportun currently operates as a state-licensed lender offering an unsecured personal loan in 12 states directly and through a bank partnership in an additional 30 states (or more). Oportun has a separate bank partnership through which it offers a credit card. The company originates refinance car loans in one state. It also offers personal loans secured by automobiles.
Many of Oportun’s loan products are higher cost or charge high fees. Oportun offers personal loans for as little as $300 or as much as $10,000, at rates of up to 36%, for between 6 and 51 months.[12] Oportun’s credit card rates range from 24.9 to 29.9%, but they are indexed to the prime rate and could rise to as high as 36%. Moreover, they can bear an annual fee of up to $69. A fee of this amount for a credit card line of as little as $300 can dramatically increase the total cost of credit. Oportun’s installment loans secured by automobiles have interest rates of as much as 35.9%, with loan terms of between 18 and 60 months, and for amounts between $2,525 to $20,000. Finally, Oportun’s automobile refinance loans have terms ranging from 24 to 72 months, with an APR of up to 24.9%, for amounts ranging from $2,525 to $20,000.
Although rates on its personal unsecured installment bear interest rates of as much as 66.9% in the past, going forward, the company has committed to limiting rates to 36% annual interest inclusive of fees.[13] While a 36% rate is widely accepted for smaller, short-term loans, this rate is extremely high for larger, longer-term loans and exceeds the rate caps in many states.[14] Twenty-three states and the District of Columbia have lower rate caps for a $2,000 loan repaid over two years. Thirty states and the District of Columbia have rate limits below 36% for a $10,000 loan repaid over five years.[15]
As an example of how expensive these rates are for larger longer-term loans, the total cost of a $10,000 unsecured personal loan at an interest rate of 35.9%, payable on a bi-monthly basis over 51 months, is $9,559. Given that a substantial share of Oportun’s borrowers refinance their loans before they are fully paid, many borrowers may experience even higher costs on an annual basis.
We urge Oportun to continue to evaluate its business model and commit to ensuring that small-dollar short term loans are widely available at 36% interest, while lowering rates for larger, longer-term loans, consistent with the rate caps for larger, longer-term installment lending in most states. Likewise, these lower rates should be offered regardless of whether the loan is originated directly under the proposed bank charter, or through a partner lender.
VI. Conclusion
While Oportun shows promise as a lender that can reach underserved people, we believe that the uncertainty around how the proposed bank will meet its Community Reinvestment Act obligations, ongoing concerns around aggressive debt collection practices, and high rates for larger, longer-term loans warrant further evaluation by the OCC and the public. Given the short comment period for this application, we urge the OCC to extend the comment period by 30 days. NCRC has been in communication with Oportun, and stands already and willing to work to accomplish the changes we believe are necessary prior to application approval.
Thank you for the opportunity to comment on this important matter. If you have any questions, feel free to contact myself, Tom Feltner, Director of Policy, at tfeltner@ncrc.org, or Josh Silver, Senior Advisor, at jsilver@ncrc.org.
Sincerely,
Jesse Van Tol
CEO
Appendix: Table of state interest rate caps by loan amount and term
| $500 installment loan[16] | $2,000 loan[17] | $10,000 loan[18] | |
| Loan Term | 6 months | 2 years | 5 years |
| Alaska | 31% | 25% | |
| Arkansas | 17% | 17% | 17% |
| Arizona | 30% | ||
| California | 25% | ||
| Colorado | 31% | 21% | |
| Connecticut | |||
| District of Columbia | 27% | 25% | 24% |
| Florida | 31% | 24% | |
| Georgia | 32% | ||
| Hawaii | 25% | 31% | 24% |
| Indiana | 25% | ||
| Iowa | 32% | ||
| Kansas | 32% | 23% | |
| Kentucky | 24% | ||
| Louisiana | 27% | ||
| Maine | 30% | 30% | 18% |
| Maryland | 33% | 30% | 25% |
| Massachusetts | 24% | 20% | |
| Michigan | 30% | 26% | |
| Minnesota | 31% | 22% | |
| Mississippi | 26% | ||
| Nebraska | 30% | 24% | |
| New Jersey | 30% | 30% | 30% |
| New York | 25% | 25% | |
| North Carolina | 16% | 31% | 27% |
| North Dakota | 28% | ||
| Oklahoma | 27% | 25% | |
| Pennsylvania | 27% | 24% | 26% |
| Rhode Island | 35% | 29% | 21% |
| Tennessee | 26% | ||
| Texas | 35% | 30% | |
| Vermont | 24% | 21% | 18% |
| Washington | 29% | 27% | |
| West Virginia | 33% | 27% | |
| Wyoming | 31% | 23% |
[1] https://oportun.com/locations/
[2] Josh Silver, An Evaluation Of Assessment Areas And Community Development Financing: Implications For CRA Reform, NCRC, July 2019, https://www.ncrc.org/an-evaluation-of-assessment-areas-and-community-development-financing-implications-for-cra-reform/
[3] Oportun’s application on page 8 states that it has made 3.9 million loans in 15 years or about 260,000 loans annually. By way of comparison, in 2016, Bank of America issued about 160,000 home loans and 445,000 small business loans, see https://www.occ.gov/static/cra/craeval/oct19/13044.pdf; in 2016, BB&T issued about 63,000 home loans and 76,000 small business loans, see https://www7.fdic.gov/CRAPES/2017/09846_170117.PDF. These two banks are in the top 10 by asset size as of spring of 2019.
[4] Application, p. 10.
[5] Ibid., pp. 108-111.
[6] Ibid., p. 6.
[7] Ibid., p. 102.
[8] Ibid., p. 111.
[9] Ibid., pp. 9, 29, 111-112.
[10] Application, p. 7 and p. 100.
[11] Ren Larson and Kiah Collier. (2020, August 31), Oportun Inc. has filed nearly 10,000 lawsuits this year against lower-income Texans, Texas Tribune and ProPublica. https://www.texastribune.org/2020/08/31/texas-oportun-lender-lawsuits/
[12] Klaros Advisors, LLC. (2019, November 6). Oportun Bank, National Association: Charter Application.
[13] ProPublica, K. C., Ren Larson and Perla Trevizo. (2020, August 31). This loan company was founded to help Latino immigrants. It has sued thousands of low-income Latinos during the pandemic. The Texas Tribune. Retrieved at https://www.texastribune.org/2020/08/31/texas-oportun-lender-latinos/
[14] Saunders, L. (April 2013). “Why 36%? The History, Use, and Purpose of the 36% Interest Rate Cap.” National Consumer Law Center. Available at https://www.nclc.org/images/pdf/pr-reports/why36pct.pdf.
[15] National Consumer Law Center. (2018). A Larger and Longer Debt Trap: Analysis of States’ APR Caps for a $10,000 5-Year Installment Loan. Retrieved at https://www.nclc.org/images/pdf/pr-reports/installment-loans/installmentLoans2018-appendixA.pdf
[16] National Consumer Law Center (February 2020). Predatory Installment Lending in the States: 2020 retrieved at https://www.nclc.org/images/pdf/rpt-InstallmentLoans-feb-2020.pdf
[17] Ibid.
[18] National Consumer Law Center (2018) APRs Allowed for $10,000 Five-year Loan by State; Showing the Maximum APRs allowed for non-bank lenders. retrieved at https://www.nclc.org/issues/a-larger-and-longer-debt-trap-installment-loan.html#map
