13 State AGs Target OneMain Financial Over Allegedly Deceptive Add-On Lending Practices

Thirteen state attorneys general are suing OneMain, a subprime lender, for allegedly trapping tens of thousands of borrowers into expensive loans with hidden costs. 

According to a press release from the New York state attorney general, OneMain exploited its customers by adding useless products into already expensive loans. These products, including insurance policies, were added without the customer’s knowledge or by misleading customers about terms and costs of the products. 

These add-on products added hundreds or even thousands of dollars more in charges on their loans. A cycle of debt ensues when, to keep up on these expensive loan payments, customers refinance their loans with OneMain and wind up with even more expensive loan packages. 

“OneMain targets people who are already struggling financially, saddling them with hidden fees and misleading loans to trap them in even more debt,” said New York State Attorney General Letitia James. “These predatory tactics are driving up costs for working families across New York and the country.”

The Case Against OneMain

OneMain’s add-on products include credit insurance products that claim to pay customers’ loans if they lose their jobs, die, or become injured. Other add-products include home and auto membership clubs.

OneMain is accused of adding these products onto customer loans without the customer’s consent by burying the terms and conditions of the products in paperwork and rushing the customer through the loan closing. 

If consumers refused these add-on products or expressed concern, OneMain employees pressured them to accept the terms of the loan. In some cases, customers were charged with add-on products after they declined them, according to the New York state attorney general. 

These add-on products are expensive. Some customers pay more for the add-on products than they do for the money they are borrowing.

The lawsuit is seeking retribution for consumers and a court order preventing OneMain from continuing its illegal practices, according to the New York state attorney general.

OneMain’s Response

OneMain has more than 1,300 branches in 48 states. In a press release, OneMain refutes the lawsuit brought forth by the 13 state attorneys general. Here is the full statement from OneMain.

“The states’ allegations are simply untrue — their case is wrong on the facts and wrong on the law and attempts to relitigate issues that were already reviewed by the Consumer Financial Protection Bureau and fully resolved. 

“We operate honestly and transparently, in full compliance with all laws and regulations, as we provide responsible and much needed access to credit for hardworking Americans. This matter does not change how we operate our business or serve our customers.

“We will litigate this case vigorously and look forward to proving the truth in court.”

In May 2023, OneMain agreed to pay $20 million to settle charges from the Consumer Financial Protection Bureau that it was pressuring its employees to sell add-on products, tricking customers into buying add-on products, and not refunding interest for customers who canceled. OneMain did not admit wrongdoing, Reuters reports.

Add-On Fees in Subprime Lending

Add-on products are a big profit driver in subprime lending with profit margins higher than the loan itself. These add-on products are found in auto financing, rent-to-own, and installment loans. 

With add-ons so popular in subprime lending, lenders will want to be upfront with customers about the costs. In particular, lenders will want to be clear with customers regarding how an add-on product affects the cost of a loan. 

The Bottom Line

Thirteen state attorneys general are suing OneMain for allegedly trapping borrowers into expensive loans with what they say are hidden costs.

The hidden costs were on add-on products such as credit insurance policies and home and auto memberships that were added without customers knowledge or by misleading customers about terms and costs.  

OneMain denies the charges. In May 2023, OneMain agreed to pay $20 million to settle charges brought by the CFPB for pressuring its salespeople to sell add-on products, and tricking customers into buying add-on products.