Lone Star Funds – DFC Global

From www.moneymart.com, accessed accessed 12/8/2014

Lone Star Funds, a private equity manager with $70 billion in assets under management,[i] acquired Pennsylvania-based DFC Global Corp (formerly known as Dollar Financial Group) in June 2014 for $1.3 billion, taking the company private.[ii]

Lone Star is owned and run by John Grayken, who in 1999 renounced his US citizenship in an effort to avoid taxes.[iii]  According to Forbes, Grayken has a net worth of $6.5 billion.[iv]

The company, which Lone Star described as “a leading international non-bank provider of alternative financial services,“[v] is a major payday lender, pawnshop operator and check-cashing provider.

DFC affiliates own and operate 1,200 retail payday lending/pawn locations in nine countries.[vi] DFC operates 250 locations as Money Mart and The Check Cashing Store in the US.[vii]. As of March 2014, DFC had nearly $500 million in loans outstanding.[viii]

Promotional material from DFC’s MILES program, which was required by federal regulators to return $3.3 million to military servicemembers. (accessed 12/8/2014)

DFC has faced regulatory action in the United States over its lending practices. Dealers’ Financial Services, a DFC-owned auto loan originator, was required by the Consumer Financial Protection Bureau to return $3.3 million to more than 50,000 military servicemembers who participated in the company’s Military Installment Loans and Educational Services (MILES) auto lending program. Working with the US Department of Defense and Judge Advocate General (JAG), the CFPB found that DFS failed to properly disclose all fees charged to participants, and misrepresented the true cost and coverage of add-on products financed along with the auto loans.[ix]

According to the CFPB, the Company’s deceptive practices included:

  • Understating the costs of the vehicle service contract: DFS claimed in marketing materials that the vehicle service contract would add just “a few dollars” to the customer’s monthly payment when it actually added an average of $43 per month.[x]
  • Understating the costs of the insurance: DFS told some customers that the insurance policy would cost only a few cents a day, when the true cost averaged 42 cents a day, or more than $100 a year.[xi]
  • Misleading consumers about product benefits: the MILES marketing materials deceptively suggested that the vehicle service contract would protect servicemembers from all expensive car repairs, when many basic parts were not covered.[xii]

In September 2015, DFC closed its US Miles/ Dealers’ Financial Services division.[xiv]

DFC has continued to offer payday loans at extremely high interest rates in the US and internationally.

Product Market Loan term Loan amount APR[xiii]
Money Mart California 30 days $60 – 255 214%
Optima installment loan Poland 6 months 1000 zł 263%
The Check Cashing Store Florida 14 days $100 390%
Money Mart Washington 9 to 45 days $100 391%
Money Mart Hawaii 14 days $100 456%
Money Mart California 14 days $60 to $255 460%
Payday Express UK 3 months £300 1,170%
OKMoney.es Spain 30 days €100 to €400 2,334%
OKMoney Poland 30 days 500 zł 2,831%
OKMoney Poland 15 days 500 zł 33,465%

In Hawaii, DFC subsidiary Money Mart charges as much as 456% interest on a 14-day loan.[xv]

In recent years, Lone Star’s DFC has opposed legislative efforts in Hawaii to cap rates at 36%, hiring one of the state’s top lobbying firms to fight proposed rate caps.[xvi]

In California, for example, DFC charges APRs as high as 460%.[xvii]

DFC companies charge even higher APRs outside the US, from 1170% in the UK, to 2,333% in Spain, to up to 33,465% in Poland.[xviii]

In October 2015, more than a year after Lone Star Funds had acquired DFC Global, the UK Financial Conduct Authority (FCA) ordered DFC to refund £15.4m to 147,000 customers.  The FCA found that that many customers were lent more than they could afford to repay, while debt collection practices were inadequate as systems suffered from errors.[xix]

Jonathan Davidson, a director of supervision at the FCA, said: “The FCA expects all credit providers to carry out proper checks to ensure that borrowers don’t take on more than they can afford to pay back.”[xx]

 

 

 

[i] http://www.lonestarfunds.com/, accessed Sept 22, 2017.

[ii] DFC Global press release, Apr 2, 2014.

[iii] “The Billionaire Banker In The Shadows,” Forbes, Mar 1, 2016.

[iv] https://www.forbes.com/profile/john-grayken/, accessed Sept 12, 2017.

[v] DFC Global press release, Jun 13, 2014.

[vi] http://www.dfcglobalcorp.com/index.html, accessed Aug 16, 2017.

[vii] http://www.dfcglobalcorp.com/index.html, accessed Aug 16, 2017.

[viii] DFC Global SEC Form 10Q, May 9, 2014.

[ix] “CFPB Orders Auto Lenders to Refund Approximately $6.5 Million to Servicemembers,” Consumer Financial Protection Bureau, Jun 27, 2013.

[x] “CFPB Orders Auto Lenders to Refund Approximately $6.5 Million to Servicemembers,” Consumer Financial Protection Bureau, Jun 27, 2013.

[xi] “CFPB Orders Auto Lenders to Refund Approximately $6.5 Million to Servicemembers,” Consumer Financial Protection Bureau, Jun 27, 2013.

[xii] “CFPB Orders Auto Lenders to Refund Approximately $6.5 Million to Servicemembers,” Consumer Financial Protection Bureau, Jun 27, 2013.

[xiii] moneymart.com, moneymart.ca, paydayuk.co.uk, okmoney.es, okmoney.pl, optimasa.pl, and thecheckcashingstore.com, accessed Aug 16, 2017..

[xiv] http://www.dfcglobalcorp.com/usmiles/usmiles.html, accessed Aug 16, 2017.

[xv] https://www.moneymart.com, accessed Sept 22, 2017.

[xvi] “Payday Lenders: Hawaii’s ‘Outrageous’ Rates Prompt Reform Efforts,” Honolulu Civil Beat, Mar 23, 2015. “Lawmaker Kills Bill To Limit Payday Loan Interest Rates,” Honolulu Civil Beat, Mar 23, 2017.

[xvii] moneymart.com, accessed Aug 8, 2017.

[xviii] moneymart.com, moneymart.ca, paydayuk.co.uk, okmoney.es, okmoney.pl, optimasa.pl, and thecheckcashingstore.com, accessed Aug 26, 2017.

[xix]  “Watchdog orders payday lender to refund £15m,” Financial Times, Oct 26, 2015.

[xx] “Watchdog orders payday lender to refund £15m,” Financial Times, Oct 26, 2015.