The cash infusion to Wellshire Financial Services — part of a multi-state title loan empire run by Atlanta businessman Rod Aycox — came from the Federal Reserve’s $600 billion Main Street Lending program for small- and medium-size businesses. It’s the same program that is among the Federal Reserve’s emergency lending facilities that will be allowed to expire at year’s end after Treasury Secretary Steven Mnuchin announced last week the unspent funds will be redirected to more distressed parts of the U.S. economy. The decision does not affect loans that already have been made, such as the one to Wellshire.
Wellshire’s government-backed, five-year loan came with a 3.15 percent interest rate, Fed records show.
Loans to consumers at Wellshire’s auto-title loan stores can carry a 350 percent annual rate, thanks to high fees and interest supercharging the cost of borrowing, according to corporate disclosure documents.
One of Aycox’s stores, LoanStar, which has dozens of branches in Texas, notes that someone taking out a $1,200 loan, secured by a vehicle as collateral, needs to pay back $1,589.97 within one month or potentially lose their vehicle. That works out to a 352.24 percent annual credit cost.
“That doesn’t look good at all,” said Marcus Stanley, policy director for the nonpartisan advocacy group Americans for Financial Reform. “This is not about keeping a local restaurant open.”
Kyle Herrig, president of Accountable, a government watchdog group tracking pandemic spending, said the government should not be helping companies such as Wellshire.
“If the Trump administration thinks the high-cost lending industry deserves a taxpayer-backed loan,” Herrig said, “it should come with the same 300 percent interest rate they charge consumers.”
Aycox and representatives of Wellshire did not respond to multiple phone calls and emails requesting comment.
A trade association that represents the owners of more than 8,000 payday and auto-title loan stores — but not Wellshire Financial — has argued that consumer finance companies should be allowed to receive pandemic stimulus loans. The industry has been “extending essential financial services during the coronavirus pandemic,” Ed D’Alessio, executive director of the Infin Financial Services Alliance, said in a statement to The Washington Post.
Aycox is one of the auto-title lending industry’s biggest players, building up stores across the country after years of success with a controversial business model that consumer advocates say exploits low-income people and can trap them in an unyielding cycle of debt.
Aycox and his wife, Leslie Aycox, are major Trump donors, contributing $746,000 to Trump’s presidential campaigns and political action committees and $1 million to Trump’s 2017 inauguration.
Last year, the auto-title lending industry — along with payday lenders — scored a major victory when the Trump administration’s Consumer Financial Protection Bureau proposed delaying a rule that would force these lenders to scrutinize whether borrowers can actually afford to pay back the loans.
Now, one of Aycox’s companies has turned to the government for help with a loan.
The Main Street Lending program has made loans to just 420 companies worth a total of $4.1 billion through the end of October, leading to criticism that it has been slow to help businesses — and, along with the other stimulus programs passed by Congress, has failed to provide enough help to people hurt economically by the pandemic.
The five-year loans have terms favorable to borrowers, including no principal payments for two years and no interest payments for one year.
The loans begin with a private bank before the Fed buys 95 percent of the obligation.
And the Main Street Lending program makes it clear that the Fed leaves it up to banks and borrowers to judge whether a company qualifies.
“Each borrower is required to certify that it is eligible to participate in the program,” Fed spokesman Darren Gersh said, describing what happens with all Main Street loans and declining to discuss Wellshire’s case. “If we find that a borrower has not properly certified their eligibility, we take appropriate remedial action.”
Wellshire got its $25 million loan in September, Fed data shows. The determination that Wellshire qualified was done by Fieldpoint Private Bank & Trust in Greenwich, Conn.
“It’s one we researched heavily throughout the process,” said Kevin O’Hanlon, who is director of business development at Fieldpoint and served as the commercial loan officer on the deal.
Wellshire plans to use the money to expand its auto-title lending business, according to Fieldpoint.
At first glance, Wellshire’s ownership of title loan stores appears to disqualify it. The Main Street Lending Program rules, based on Small Business Administration guidelines, prohibits companies that are primarily engaged in lending.
“The federal government doesn’t want to be subsidizing companies that are just going to jack up the interest,” said Lauren Saunders, associate director of the National Consumer Law Center.
There is an exception for some lenders, such as pawnshops, if less than half their revenue comes from interest.
Wellshire appears to base its case for loan qualification on how it lends money — thanks to changes adopted by short-term lenders in Texas several years ago to avoid that state’s cap on interest rates.
Wellshire, despite operating title loan stores, does not actually earn money from loan interest payments, according to Fieldpoint.
While the company’s storefronts have names such as LoanStar Title Loans and websites promoting “Cash loans on car titles,” the stores are organized in Texas as “credit access businesses,” not auto-title lenders, Texas regulatory records show.
It wasn’t always that way. Texas originally created the category of credit access businesses to keep track of companies that help consumers repair their credit. But, according to consumer advocates, then the state capped interest rates on consumer finance loans at 10 percent.
So most auto-title lenders and payday lenders became credit access businesses — operating just as they always did, except the loans were financed by outside lenders who took the interest payments, according to consumer advocacy groups.
Interest charges were still capped at 10 percent. But the auto-title lenders were free to charge whatever fees they wanted.
“It was a workaround on state usury laws,” said Ann Baddour, director of the Fair Financial Services Project at the nonprofit Texas Appleseed.
So LoanStar Title Loans does not technically earn interest on loans. It markets and arranges the loan with an outside lender who profits from interest payments. But LoanStar does profit from the fees it charges for the loans — fees that make up the bulk of the loan’s cost.
On that $1,200 loan from LoanStar, the outside lender earns $12.96 in interest after one month, according to the title lender’s disclosure. But LoanStar earns $377.01 in fees on the loan in that same time.
The relationship between the title loan store and the outside lender is extremely close, blurring the distinction between the two, Baddour said. Usually the borrower has no idea. After all, the auto-title store is required by state law to be a party to the loan. The auto-title store also guarantees the loan, so if the consumer fails to make payments, the title store pays off the outside financing company and takes over collection on the loan. The borrower can lose their car or truck.
An auto-title lender acts just like any other lender, Baddour said.
So the idea that a title lender qualifies for government aid during a pandemic, she said, “that’s deeply troubling.”