(Written jointly by Private Equity Stakeholder Project and Americans for Financial Reform)
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]
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]
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]
[viii] DFC Global SEC Form 10Q, May 9, 2014.
[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.