Chicago-based lender stymied by state cap on interest rates

For many people, the most important thing the Illinois Legislature did last year was pass the Predatory Loan Prevention Act. Gov. J.B. Pritzker signed the measure last March, and consumer advocates hailed it as one of the toughest state laws on interest charged for consumer loans.

The Woodstock Institute said the law already has saved Illinois borrowers $200 million.

It set the maximum rate at 36%, the same as limits in other states. The Illinois law goes further than some. It includes a “no evasion” section to bar high-cost lenders from sidestepping the rate cap.

Outside of Illinois, some get around the cap by routing loans through a federally chartered or out-of-state bank that can claim an exemption to the rules. Consumer groups call it a “rent-a-bank” scheme.

The Illinois law knocked out of business those who dealt in auto-title and personal loans, payday advances and other forms of finance whose interest rates are well into the triple digits, often 400% and higher. It caused big trouble for Chicago-based Opportunity Financial, which does business as OppFi.

The company, which became publicly traded last year, found itself barred from finding customers close to home as long as its rates remained above the limit. It had operated here since 2012. OppFi disclosures show its typical loans, ranging from $500 to $4,000, carry annual percentage rates of up to 160%.

Across the country, OppFi is among the most vigorous users of the rent-a-bank strategy. Its website reports it does business that way in 31 states, including Indiana, besides making loans directly in four others, including Wisconsin.

But the company, whose stock has fallen sharply in recent months, evidently wants that Illinois business. Accountable.US, a nonpartisan research and watchdog group, has been sleuthing OppFi and turned up evidence of possible lobbying it says could violate state law.

Shanelle Jackson, OppFi’s senior manager of government relations, has posted on Facebook about contacts with Illinois lawmakers, such as a “phenomenal dinner” last November with House Speaker Emanuel “Chris” Welch, followed by another a month later. State records show Jackson registered as a lobbyist for the first time on Jan. 26. Her posts do not indicate topics aired at the meetings. Jackson also is running for Congress from the Detroit area.

State Sen. Jacqueline Collins, D-Chicago, was a principal sponsor of the Illinois interest-rate cap and believes OppFi is looking for loopholes. In November, OppFi settled charges against it in the District of Columbia and agreed to refund $1.5 million to customers. The attorney general there charged that OppFi violated the state’s 24% rate cap and engaged in deception. He called the 160% loans “exploitive.” The company admitted no wrongdoing.

State Sen. Jacqueline Collins, D-Chicago

A spokeswoman for Welch had no immediate comment on contacts with OppFi. Collins said the House speaker has strongly supported limits on so-called subprime lenders that disproportionally victimize Black and Latino borrowers. She also said the cause has had the firm backing of Senate President Don Harmon, D-Oak Park. “I’m trying to put up the guardrails here,” Collins said.

Asked if OppFi stands any chance of weakening the state law, which passed with bipartisan support, Collins said, “In this business, I wouldn’t put anything past the forces with money. That’s not a disparagement on my colleagues, but it’s an election year, and some may need money for their campaigns.”

In late December, James Clayborne Jr., a former Illinois Senate majority leader, filed paperwork to show Opportunity Financial had retained him as a lobbyist. Clayborne did not reply to requests for comment.

OppFi did not answer questions for the company or for Jackson, instead providing a statement about its business practices. It read, “OppFi provides outsourced services to state-regulated, FDIC-insured banks to help them provide affordable loans to millions of everyday consumers who lack access to traditional credit products.

“The banks that utilize OppFi’s platform have a core competency in community banking, and by working with companies like ours, these banks are able to play a role in expanding credit access to people who need it and who would otherwise be locked out of the system and forced to work with payday lenders or other problematic providers. The rates offered by the banks through the OppFi platform are pursuant to the bank’s underwriting criteria.”

In an interview with IPO Edge last March, then-CEO of OppFi Jared Kaplan, now a board member, said, “Our mission is to help everyday consumers gain access to simple, transparent products, rebuild their financial situation and graduate back into the ecosystem of mainstream credit.”

Consumer groups argue there’s nothing transparent about OppFi’s bank partnerships that get around rate caps. OppFi reports using three small banks, all chartered in Utah. Lauren Saunders, associate director of the National Consumer Law Center, said the big banks stay away from this business. Why is it even legal? “The FDIC has been asleep at the switch,” she said.