DBO Investigations into lead generators

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DBO Investigations into lead generators

California’s Financial Service Regulatory Body Queries Consumer Finance Sites linked to High-Interest Lenders


The Department of Business Oversight on Wednesday, 26th September 2018 launched a probe on high-cost loan companies due to a loose end in several oversight bills which have failed to regulate activities of the lending companies effectively.

DBO, California’s leading regulator on financial matters set up an investigation of 20 high-cost lenders on their use of lead generators.

The current state regulations imply that lenders can charge high-interest rates on loans of $2,500. And if the loan amount is lesser than $2,500, lenders can charge even higher rates.

The probe which focuses on lenders that offers online lending services to costumers aims at getting answers to three key questions:

  • How many consumers does the lead generator attract
  • How are the loans that are offered to these consumers guaranteed
  • How many of the consumers choFose to collect less than $2,500 loan

According to the department’s Commissioner, Jan Lynn Owen, she intends to ensure that these lead generators are not compelling customers who which to get a small loan amount into loans with a high-interest rate.

Speaking in a statement announcing the probe, Jan said: “What we’re seeking is additional information that will help us ensure lenders and lead generators do not use unfair, deceptive practices to trap consumers in high-cost loans they don’t want and can’t afford.”

The target 20 companies include top lenders that offer only online lending services, like Elevate, CashCall, Enova, and LoanMe. The list also includes lenders with physical offices located in the state, like TitleMax, Ace Cash Express, and MoneyMart.

The investigation targets loan companies that charge over 100% interest rates on $2,500 to $9,999 loans issued to at least 900 consumers out of a 1000 consumer loan in the previous year.

According to DBO, the probe kick-starts a revolution in the oversight of the industry. The inquiry will also begin with the 20 lending firms that contribute to over 60% of all APR loans made in California in the previous year.

This year, lawmakers considered approving some regulatory measure, like;

  • A cap on the number of payday loan allowed a single borrower that is capable of paying off the loan,
  • Licensing lead generators as loan brokers, and
  • Passing a bill to regulate the interest rates on larger loans

Amid failed attempts by lawmakers to approve these policies, DBO’s Commissioner believes that with the authority of the department, new rules without new legislation can be drafted.

Bills that would have put limiting rules on the industry have been somehow disregarded be lender and lead aggregators – intermediaries that sell leads to lenders.

For example, Online Alliance argued that the Assembly Bill 3207 which was intended to establish licensing of lead generators would cause some lending firms to shut down.

According to Jan, the activities of unlicensed and predatory lead generators, especially online lead generators, are a problem that needs to be fixed.

Although no specific lead generator was singled out, the inquiry extends to those who are not limited to online operations, including lead aggregators.