Nonbank lender OppFi abandons plan to buy a bank

• Key insight: The would-be acquisition was the second deal of its kind to fall apart in recent months, after Enova International, another non-bank lender, abandoned its effort to buy Grasshopper Bancorp.
• What’s at stake: The BNC deal would have netted OppFi a bank charter, which consumer advocates argue would allow OppFi to spread predatory lending practices to more of the country.

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Amid opposition from state officials and others, the non-bank consumer lender Opportunity Financial has given up on its recent bid to acquire a bank.

The Chicago-based OppFi, which issues subprime loans at very high interest rates, said Tuesday that it has withdrawn its application to purchase BNCCORP, the North Dakota-based parent company of BNC National Bank. The merger had been expected to close this quarter.

In a statement, OppFi CEO Todd Schwartz appeared to blame the deal’s collapse on a lack of clarity from federal regulators.

“We believe that our applications satisfied the existing statutory criteria for approval, but there is a lack of clearly articulated standards by which those criteria are being used to evaluate our applications and the proposed combination with BNC,” Schwartz said. 

OppFi announced in April it had reached a deal to acquire the $1 billion-asset BNC, pending the approval of shareholders as well as the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.

During OppFi’s third-quarter earnings call last week, Schwartz gave no hint that something was amiss. Shareholders had “overwhelmingly” greenlit the merger, he told investors, and approval by federal regulators remained the “final step.” 

But on Tuesday, Schwartz implied that problems with one or more of those regulators had blocked the deal.

“We encourage federal regulators to expeditiously articulate clear standards that will allow innovative community banks and financial technology platforms to combine to better serve the tens of millions of Americans whose needs are not being met by traditional banks,” Schwartz said in his statement on Tuesday.

If it had gone through, the BNC deal would have brought OppFi a bank charter, something that could have greatly benefited its business. 

OppFi specializes in making small-amount, high-cost loans to cash-strapped Americans, charging annual percentage rates of up to 195%. But some states prohibit such high APRs, limiting the fintech’s reach. A national bank charter would have made OppFi subject to federal regulators, not state ones, allowing it to operate in all 50 states.

The OppFi-BNC deal is not the only acquisition of a bank by a non-bank lender to fall apart in recent months. In September, Enova International — another Chicago-based non-bank lender — withdrew its application to acquire New York’s Grasshopper Bancorp.

In that case as well, the non-bank lender blamed a lack of clarity from federal regulators.

“Without … clearly articulated standards, the process is susceptible to influence, political pressure and outside advocacy, independent of the merits of the application itself,” Enova CEO Steve Cunningham said during a call with investors after the deal fell through.

The OppFi and Enova deals had something else in common: Both were vocally opposed by more than a dozen state attorneys general. The coalition of AGs, most of them Democrats, argued that acquiring lenders with bank charters would enable OppFi and Enova to subject more Americans to predatory lending practices. In multiple letters, they urged federal regulators to reject the mergers.

“The high-cost, high-charge-off lending practices that characterize Enova’s business is [sic] not traditional bank lending, and Enova should not be permitted to use a bank charter to spread such practices throughout the United States,” the attorneys general, including New York’s Letitia James and California’s Rob Bonta, wrote on July 6 to the Federal Reserve.

A number of consumer advocacy groups opposed the mergers on the same grounds. On Tuesday one of those groups, the Center for Responsible Lending, celebrated the failure of the OppFi deal and said federal regulators should go further.

“OppFi drains borrowers dry — financially devastating families and communities along the way and making the lender unfit for our insured banking system,” Katelin Kaiser, policy counsel for the CRL, said in a statement. “Following the withdrawal of bank applications from OppFi and, recently, Enova, federal banking regulators should clearly state that high-cost lenders cannot use a national bank charter to override state protections against high-cost loans.”

OppFi, meanwhile, defended the merits of its would-be acquisition.

“We believe the combination of OppFi’s sophisticated online lending platform with BNC’s national bank charter and diversified banking infrastructure would create a stronger, more diversified banking organization,” Schwartz said Tuesday in his statement. “We are confident in the long-term earning power of OppFi and our opportunity to create substantial long-term value, regardless of whether we do so under a national banking charter.”