California studies role of lead generators in high-cost loans


California Governor Jerry Brown’s Administration Examines Role Online Lead Generation Companies Play In Directing Cash-strapped Consumers To Larger Loans Than They Want Or Need .

The state’s Department of Business Oversight on Wednesday sent letters to 20 non-bank lenders that charge three-digit annual percentage rates, requesting information on their use of online referrals.

The agency also said it was considering drafting regulations that would allow the state to provide more oversight of lead generation sites. Consumers looking for loan options on the internet are often found on the websites of these companies, which collect information on borrowers and then sell the leads to high cost lenders.

“We know from our enforcement work that California consumers who want loans with interest rate limits are directed by online lead generators to lenders who only provide high-cost loans with no interest rate limits. rate cap, ”Department Commissioner Jan Lynn Owen said in a press release. .

The measures announced Wednesday demonstrate the Brown administration’s frustration with the political influence high-cost lenders wield in California, where a quirk of state law has allowed non-banks to reap larger profits large consumer loans than small ones. The stocks also reflect the growing role Internet search results are playing in the behavior of subprime borrowers who are not eligible for bank loans.

California’s actions will likely be watched closely by officials from other Democratic-leaning jurisdictions, who often follow the lead of the nation’s largest state.

Last year, 58.7% of unsecured personal loans of $ 2,500 or more in California were taken online, according to state data. Many of them had annual percentage rates of 100% or more.

“Lead generators, especially those that operate online, play an important and growing role in acquiring borrowers,” said Owen. “In California, much of the activity is unlicensed and harmful to consumers. This problem needs to be resolved.

Under California law, the interest rate that can be charged on consumer installment loans under $ 2,500 is capped at about 30%. But beyond the $ 2,500 threshold, the state has no rate cap, providing lenders with a strong financial incentive to steer potential borrowers into larger loans.

In May, Golden State lawmakers rejected legislation that would have capped interest rates at 36% on some larger consumer loans. Also this year, the legislature struck down a bill that would have required lead generation companies operating in California to be licensed by the state.

The proposal was backed by the Brown administration, which signaled its interest in taking action to curb high-cost lenders on Wednesday, even though it lacks the support of the legislature. The state’s longtime Democratic governor is stepping down in January and his successor will have the option of appointing a new commissioner in the Department of Corporate Oversight.

Letters sent Wednesday were only addressed to lenders who last year made a substantial number of loans ranging from $ 2,500 to $ 9,999 with triple-digit APRs in California. Companies on the list include some of the biggest names in short-term consumer credit, such as Enova International, Elevate, Cash America, and Ace Cash Express. None of those companies immediately responded to requests for comment on Wednesday.

The letters ask lenders to report how many of their customers are acquired through the use of online lead generators. They are looking for information on how lead generators are paid. They also ask if business loans are taken out differently depending on whether the borrower went directly to the lender or was referred by a lead generator.

Additionally, the letters ask lenders to disclose how many of their borrowers who were referred by lead generators first indicated that they wanted loans under $ 2,500.

Mary Jackson, CEO of the Online Lenders Alliance, a business group that represents both lenders and lead generators, said most of the data requested by the state is already available in the annual reports that lenders make. California are required to file.

“This is a complex issue, which is why lead generators have been actively engaged with California [Department of Business Oversight] working on a pragmatic solution for smart regulation and legislation, ”she said in an email.

“We will continue to advocate for policies that allow our members to market and take out loans fairly and appropriately to the hundreds of thousands of Californians who lack premium credit and who would otherwise be left with no options. “

Nationally, the lead generation industry has come under more scrutiny as online loans have become more popular in recent years.

In 2013, New York officials sent subpoenas to 16 online lead generation companies they suspected of deceptively marketing illegal loans in the Empire State.

Last September, the Consumer Financial Protection Bureau entered into a consent agreement with Zero Parallel LLC, a lead generation company that allegedly facilitated consumer loans that authorities deemed likely to be void under applicable state laws. .

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