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Sharks in Texas smell fresh meat

An Oportun location in Brownsville, TX. Photo by Eddie Gaspar / The Texas Tribune

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.  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.

Latino small businesses owners are a growing force in the USA

Latino small business owners are an emerging force in the USA and have become the fastest-growing small business owners across the USA.1 Oportun sued Texas borrowers more than 47,000 times from May 2016 through July 2020.2 More than 5,000 lawsuits were filed after the World Health Organization declared the coronavirus a pandemic. he 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. When questioned, 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.”

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau 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.3 “[W]e will also look more broadly,4 beyond fair lending, to identify and root out unlawful conduct that disproportionately impacts communities of color and other vulnerable populations.”5

Oportun Loan Contract (The Texas Tribune)

Last July, after the publications began asking questions about the company’s debt collection practices, Oportun announced6 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%.7

The average interest rate for a small business loan varies depending on your qualifications as a borrower, the type of loan you’re applying for and which lender you select. Loans from traditional lenders, such as banks or credit unions, can have annual percentage rates (APRs) ranging from 3% to 7%, while alternative or online loans can have APRs ranging from 7% to more than 100%.8 Those who are able to borrow from banks can expect these rates:

Average interest on a small business loan from banks.

Those who are unable to borrow from banks can find better rates at these lenders:

Interest on loans to people who cannot borrow from banks

  1. https://www.usatoday.com/in-depth/news/nation/2020/02/24/latino-small-business-owners-becoming-economic-force-us/4748786002/.
  2. https://www.theguardian.com/us-news/2020/aug/02/oportun-loans-lawsuits-latino-small-claims-california.
  3. https://www.consumerfinance.gov/about-us/blog/the-bureau-is-taking-much-needed-action-to-protect-consumers-particularly-the-most-economically-vulnerable/.
  4.   https://www.cdfifund.gov/.
  5. https://www.texastribune.org/2021/01/08/oportun-loan-latinos-lawsuits-bank/. cf. https://www.americanbanker.com/news/cfpb-goes-on-hiring-spree-as-it-looks-to-ramp-up-enforcement.
  6. https://www.propublica.org/article/they-sued-thousands-of-borrowers-during-the-pandemic-until-we-started-asking-questions.
  7. https://www.texastribune.org/2021/01/08/oportun-loan-latinos-lawsuits-bank/. cp. https://occ.gov/publications-and-resources/publications/comptrollers-licensing-manual/files/charters.pdf.
  8. https://www.valuepenguin.com/average-small-business-loan-interest-rates.

4 comments to Sharks in Texas smell fresh meat

  • Cesar Cordova  says:

    Unfortunately this situation. Unfortunately the need of many people leads them to require abusive loans (but this should be the government regulators), another problem (I do not know if it is the case) is that there should be a follow-up (by the entity that lends the money ) of the borrowed money, because I suppose that many people make loans and misuse them, not using them for the purpose that they were given. What would weaken the payment commitment.

    I am aware that the loans should be used to start a business, so it could generate profits and meet the payments. In my country (Peru) many people get into debt for acquiring superfluous things, debts that are very difficult to pay which raises the delinquency rate of loan entities.

    Abuse occurs everywhere, when I was in Peru, there are many people who, in a particular way, get your mobile phone number and send you messages offering you money loans. This is like entering the devil’s house (I know because I have read many cases on this subject), by lending you money (even there, fine), if you default on the payments, there will always be hobbies that will come looking for you to threaten you to death or kill a relative (it is common in South American countries), it seems that loans would be from people from Colombia (perhaps linked to drug trafficking to launder money).

    Unfortunately (as I mentioned at the beginning (the need of people makes us fall into this modality. I think that if people do not have a goal of building a business, they should not go into debt. A teacher (who taught me an Accounting course) told us If they want to buy superfluous things (clothes, TV, music equipment and etc.), the best option is to collect the money and buy the things in cash. He also said: “We are not going to die if we do not have those things.”

    In short, each one gets tangled up alone in her labyrinth. In my country there is a popular saying: “Everyone is deceived, with the lie that he likes the most.”

  • J Besse  says:

    I really can’t say to much about this because I don’t know that much about it. I have used a very high interest loan just once when the offer showed up in my mail box and I wanted to go on a vacation. It was a “signature” loan. Just sign the form and the check’d be in the mail. I did call and ask what their APR was. It was something like 29.95% and this was 1983. I knew it, but calculated I could knock it out in less than 60 days. (It was a one year note. After paying it back, (in 5-6 weeks) I figured it cost me about $25-$30. Not bad for the use of someone else’s $1000.

    I believe that much of this is governed by individual states and in Texas it is through the roof. The biggest problem is that the potential borrower either does not know to ask question or what questions they should ask. If anything, all they want to know is how much the monthly payment is and not what then loan costs.

    However,even having the answers most borrowers could care less. They are close to desperation and want a quick fix and tomorrow will have to take care of itself. And the “legal” loan sharks know it. Or they wouldn’t be in business.

  • Bobbie Lay  says:

    This article is interesting and upsetting. I don’t understand why companies who take advantage of lower-income borrowers are not on the radar of a regulatory body.

  • Sami S. Thompson  says:

    Art –

    An excellent, well-written article! I can’t tell you how much I appreciate you providing sources AND additional references for your articles. It makes it easy to continue the search if I need more detail.

    I’ll be candid: as far as Oportun, Inc. goes, I DID have to stop and breathe into a paper bag after reading about the 66.90% interest rate. ACK! Whatever happened to usury laws?

    I think the lender has just as much responsibility when granting a loan. If the lender is only interested in generating profits & cares nothing about its customers, any success it sees will be shallow & temporary. There is so much more to a person than a credit score. Lenders should get to know the character of their customers & develop a relationship with them. If Oportun, Inc. was really founded to help Latino immigrants, it could have taken that route.

    In all fairness, I guess Oportun couldn’t very well say it was founded to take advantage of Latino immigrants and cheat them whenever possible. It wouldn’t go over well on a business plan. Plus, there would be the problem of people like me, outraged by racism and greed, perfectly willing to smack them with my cane.

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