A federal consumer watchdog agency has launched an investigation into a company that aggressively sued thousands of Latino borrowers in Texas during the coronavirus pandemic while depicting itself as a financial ally of the community.
Oportun Inc., a Silicon Valley-based installment lender, which was founded to help Latino immigrants build credit so they can go on to achieve the American Dream, disclosed to investors last week that it had received a civil investigative demand from the Consumer Financial Protection Bureau.
The company indicated that it was part of a larger probe of small-dollar lenders by the federal watchdog, which was formed by Congress in the wake of the 2008 financial crisis in an effort to better guard Americans from abusive lending practices.
The investigation comes after ProPublica and The Texas Tribune last year revealed that Oportun had become the most litigious personal loan company in Texas, suing thousands of lower-income borrowers at a rapid pace even as other lenders halted or slowed legal action during the pandemic.
An analysis of court records in nine of Texas’ 10 largest counties — home to the vast majority of the 80 kiosks and strip mall storefronts the company operates in the state — found that Oportun sued Texas borrowers more than 47,000 times from May 2016 through July 2020. More than 5,000 lawsuits were filed after the World Health Organization declared the coronavirus a pandemic.
The company also routinely charged high interest rates and kept borrowers on the hook, sometimes for years, by offering increasingly larger loans with slightly lower rates, the news organizations found.
In its latest quarterly financial filing, Oportun told investors that the federal investigation would “focus on the company’s legal collection practices from 2019 to 2021 and hardship treatments offered during the COVID-19 pandemic.”
Company officials told investors that they were unable to predict the outcome of the federal probe and did not know if it would “result in any action or proceeding against the company or in any changes to its practices.”
In a statement to ProPublica and the Tribune, Oportun said it would cooperate with the investigation but that it “believes our practices have been in full compliance with CFPB guidance” and that it has “followed all published authority on these matters.”
The CFPB didn’t respond to a request for comment.
The federal investigation comes as President Joe Biden’s administration began beefing up staff at the bureau in anticipation of more enforcement activity.
In a letter to staff in January, acting Director Dave Uejio said his two top priorities are to assist consumers who have been economically impacted by the COVID-19 pandemic and to address racial inequality.
“On COVID-19, we need to take swift action now, in order to make sure our actions help people in the middle of the crisis, rather than just cleaning up after the fact,” Uejio wrote. “(W)e will also look more broadly, beyond fair lending, to identify and root out unlawful conduct that disproportionately impacts communities of color and other vulnerable populations.”
Horacio Mendez, president and CEO of the Woodstock Institute, a nonprofit policy group that advocates for fair lending and economic equality, said that, in the past, many bureau investigations ended in settlements that he and other advocates believed were too lenient to change behavior.
In Oportun’s case, he said the behavior was particularly egregious because the company was certified as a community development financial institution, an esteemed federal designation for banks, credit unions and other lenders that largely serve low-income or underserved communities of color.
“What they showed us before is that the drive for profitability often overrides ethical behavior,” Mendez said of Oportun. “And the fact that they were a CDFI and did that, it was an extra cross in their obituary.”
In December, the Woodstock Institute and dozens of other consumer advocacy organizations and Latino civil rights groups contested Oportun’s effort to become a national bank, citing the ProPublica and Tribune investigation and another probe by The Guardian into the company’s prolific legal debt collection practices in California.
Oportun made some changes to its debt collection and business practices last year.
After ProPublica and the Tribune began asking questions about its debt collection practices, the company announced that it would drop all pending lawsuits, temporarily suspend new filings and file 60% fewer cases in the future. It also vowed to cap interest rates on its loans at 36%.
Consumer advocates have said those measures don’t go far enough.
Ann Baddour, director of the Fair Financial Services Project at the nonprofit advocacy group Texas Appleseed, described the bureau’s investigation of Oportun and other small-dollar lenders as encouraging.
“Families in Texas are suffering right now from a double whammy with financial setbacks due to the pandemic compounded by the winter storm,” she said, referencing the cold blast last month that left millions of residents without power and water. “It is essential that businesses that lend in our state are held accountable to the law and that they treat customers fairly.”