- Key insight: OneMain is pushing back against claims that it pushed subprime borrowers into taking on more expensive loans.
- Supporting data: In 2023, the Consumer Financial Protection Bureau charged OneMain $20 million for violations related to the company’s add-on practices.
- What’s at stake: The lender is one of the largest installment loan companies in the country, with more than 1,300 branches across 44 states.
A group of 13 U.S. state attorneys general sued OneMain Financial on Monday, alleging that the installment loan company charged unknowing subprime consumers hundreds or thousands of dollars for “add-on” products and policies.
The coalition of AGs, led by New York Attorney General Letitia James, claimed that OneMain unlawfully tacks on expensive products, such as insurance policies and home and auto membership clubs, to its loans.
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The complaint, filed in federal court in New York, alleges the company misrepresents the add-on charges, making them difficult for consumers to understand and even harder to opt out.
“Consumers who take out high-interest loans are often facing immediate financial difficulties, and they may understand that such loans are costly,” the suit says. “But OneMain’s unlawful add-on and refinancing practices leave many of its customers significantly worse off than they bargained for when they came to the company for financial relief.”
OneMain spokesperson Howard Schloss said in an email to American Banker that the “allegations are simply untrue.”
“We operate honestly and transparently, in full compliance with all laws and regulations, as we provide responsible and much needed access to credit for hardworking Americans,” Schloss said. “This matter does not change how we operate our business or serve our customers. We will litigate this case vigorously and look forward to proving the truth in court.”
The AGs’ suit states that OneMain incentivizes employees to upcharge customers by offering commissions for each additional noncredit product sold.
The entire premium or fee of OneMain’s add-on products is paid upfront and financed into the loan, instead of paid monthly, which adds hundreds or thousands of dollars in interest to the loan, according to the suit.
The attorneys general also claim that OneMain employees focus consumers only on the monthly cost instead of the total premium cost, and don’t mention that add-ons will inflate the interest amount.
OneMain also pushes its employees to pressure customers to purchase products until the consumer “has explicitly said ‘no’ three separate times,” according to the suit.
The attorneys general are seeking restitution for consumers who were allegedly charged for add-on products unlawfully, along with a court order barring the related practices. The suit also asks the court to order OneMain to withdraw negative information reported to credit agencies, and to abandon any legal proceedings against customers related to add-on products.
Along with James, the suit was filed by the attorneys general of Colorado, Maryland, Nevada, New Hampshire, New Jersey, North Dakota, Oklahoma, Pennsylvania, South Dakota, Virginia, Washington and Wisconsin.
OneMain is one of the largest installment lenders in the country, with more than 1,300 branches across 44 states.
The company’s stock fell some 4.5% on Monday afternoon after the suit was announced.
This isn’t the first time the company has been in hot water over alleged noncompliance with consumer-protection laws.
In 2023,
The CFPB said at the time that OneMain directed employees “to upsell borrowers on every loan,” even after the customers had declined the products on previous loans.
OneMain did not admit wrongdoing, but it agreed to issue interest refunds to fewer than 1% of its customers who’d been impacted by the refunds in the previous four years.
Schloss said Monday that the AGs’ suit is an effort to reopen issues that were already reviewed by and resolved with the CFPB.
Moshe Orenbuch, an analyst at TD Securities, said in a note on Monday that OneMain’s credit insurance product is the company’s “most major add-on product.” He said the product helps consumers make payments in situations where they would otherwise be unable to do so.
“We note that OneMain’s insurance revenue has barely grown over the past couple of years, if at all, while insurance expenses have been growing faster,” Orenbuch wrote, explaining that the higher expenses are likely the result of a rising unemployment rate.
Although OneMain didn’t agree with the CFPB’s 2023 conclusion, the company made the cancellation policies for credit insurance “more liberal as a result,” Orenbuch said. Still, he said, the insurance product has a low-single-digit rate on cancellation annually, “which likely demonstrates consumers’ need for the product overall.”
Shortly before the CFPB assessed its fine, the New York State Department of Financial Services