The Consumer Financial Protection Bureau (CFPB) has ordered installment lender OneMain Financial to pay $20 million in redress and penalties for failing to refund interest charged to 25,000 customers who cancelled purchases within a purported “full refund period,” and for deceiving borrowers about needing to purchase add-on products to receive a loan. OneMain will pay $10 million in refunds to consumers it harmed, and an additional $10 million penalty to the CFPB’s victims relief fund.
“OneMain pressured its employees to load up its loans with extra charges through false promises of easy cancellation with full refunds,” said CFPB Director Rohit Chopra. “We are ordering OneMain to refund borrowers it cheated and to clean up its business practices.”
OneMain is a nonbank personal loan installment lender headquartered in Evansville, Indiana and is a subsidiary of OneMain Holdings, Inc. (NYSE:OMF). OneMain is one of the largest non-depository personal installment lenders in the United States. It has a nationwide network with more than 1,400 branches across 44 states. The company offers loans and makes extra profits by upselling borrowers with products such as roadside assistance, unemployment coverage, and identity theft coverage.
OneMain expected its employees to upsell borrowers on every loan. Employees were incentivized to push more products, and company training materials directed them to upsell them even when consumers had already declined the products on previous loans. Salespeople were evaluated on the basis of their sales rate and could even be fired if they did not upsell enough.
The CFPB found that OneMain:
- Tricked borrowers into signing up for optional products: OneMain customers were led to believe that they could not receive a loan without signing up for an add-on product. Some employees added the products to paperwork without verbally informing the consumer that the products were included or optional, a practice referred to internally as “pre-packing.” If the consumer identified the products and asked for their removal, employees were expected to make it seem difficult to remove the products. In other cases, employees obscured written disclosures from consumers’ view, or verbally contradicted them.
- Kept $10 million in interest charges despite its “full-refund” policy: OneMain told borrowers they would receive a “full refund” on add-on purchases if they cancelled within a certain period (generally 30 days). However, OneMain unfairly failed to refund interest charges for about 25,000 borrowers who signed up for add-ons such as roadside assistance benefits, identity theft protection, or entertainment discounts. Because of how OneMain precomputed interest on some loans, customers had already been charged significant amounts of interest that the company did not refund. Over the past four years, OneMain kept approximately $10 million in interest charges attributable to add-ons cancelled within its purported “full refund period.”
Under the Consumer Financial Protection Act (CFPA), the CFPB has the authority to take enforcement action against institutions violating consumer financial laws. The CFPB found that OneMain’s practices violated the CFPA’s prohibition on unfair practices by charging and then failing to refund the full premium or fee and interest that accrued on add-on products consumers did not agree to purchase. OneMain also charged and failed to refund interest that accrued on add-on product fees during an advertised full refund period. Finally, the CFPB found OneMain was illegally interfering with consumers’ ability to understand that certain products were optional, and that OneMain charged non-refundable interest during the purported full-refund period.
The order requires OneMain to:
- Adjust cancellation policies: The order requires OneMain to stop its unlawful activities, adjust its policies to make cancellation of add-on products easier, double the period in which a consumer can cancel an unused add-on product without cost from 30 to 60 days, and include interest in refunds after add-on product cancellations at any time.
- Provide redress to consumers: The order requires OneMain to pay $10 million in refunds to consumers for improper charges.
- Pay $10 million in penalties: OneMain is required to pay a $10 million penalty to the CFPB, which will be deposited into the CFPB’s victims relief fund.
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