Mnuchin admits Main Street loan to Wellshire, a title lender, ‘not the intent’ of the program

But Wexton (D-Va.) wanted to ask Mnuchin about one loan in particular.

At a congressional oversight hearing this week, Wexton was curious what Mnuchin thought of a $25 million low-interest Main Street loan that went to Wellshire Financial Services, part of a multistate title loan empire owned by Atlanta businessman Rod Aycox.

Wellshire’s loan stores in Texas — with names like LoanStar and MoneyMax — offer consumers loans that are backed by their vehicles and come with annual borrowing costs reaching 350 percent. Consumer advocates have complained for years that these loans are usurious and unfair.

By contrast, Wellshire’s loan, backed by the federal government, carried a 3.15 percent interest rate. It also had favorable terms, such as no payments for the first year.

The loan to Wellshire appeared to skirt the Main Street program’s rules barring companies that are primarily engaged in lending. But there is a carve out for some lenders, such as pawnshops, if less than half their revenue comes from interest.

According to Fieldpoint Private Bank & Trust, which did the paperwork for the Main Street loan, Wellshire does not earn money on interest charges. That’s because Wellshire and other title lenders in Texas have organized their businesses to act only as pass-through agents for loans made by out-of-state firms. All car title loans are capped by Texas law at 10 percent interest. The real profit is in the loan fees. And Wellshire’s stores charge hundreds of dollars in fees. A $1,200 loan for one month costs just $12.96 in interest, but $377.01 in fees, according to LoanStar disclosures. The effect is the same to consumers: The annual cost to borrow reaches 352 percent.

Aycox and representatives of Wellshire did not respond to multiple attempts to reach them.

“I assume that you’re familiar with those loan because it’s been reported in the media lately,” Wexton said to Mnuchin at Wednesday’s hearing. “Are you familiar with this loan that was made?”

Mnuchin said he wasn’t familiar with the loan and hadn’t examined the loan files. But, he said, “I’ve seen certain things in the media.”

“Would you agree, assuming that’s correct,” the congresswoman said, “would you agree that this violates the spirit and the intent of the law and the regulations?”

“I would,” Mnuchin said. “I would expect that that loan will be reviewed and audited.”

“So you agree that it’s not a good look,” Wexton said, “especially given that it has come to light that the owner of the company is a major donor to the president?”

Aycox and his wife, Leslie Aycox, contributed $746,000 to Trump’s presidential campaigns and political action committees and $1 million to Trump’s 2017 inauguration.

“Again, as I’ve said, I don’t know the specifics of the loan,” Mnuchin said. “But I agree based upon what you’re saying, that was not the spirit and the intent of the use of the loans.”

When Wexton tried to get Mnuchin to commit to consider “clawing back” the funds, Mnuchin demurred. The Treasury Department shared responsibility for the Main Street program with the Federal Reserve. And the Federal Reserve actually ran the program.

Mnuchin motioned to Fed Chair Jerome H. Powell, sitting at a nearby witness table, and suggested he answer.

Wexton repeated her question.

Powell said it would be inappropriate to comment on a single loan. He noted he wasn’t involved in the loan process.

“I will say this,” Powell said. “People make representations. We set out clear rules. They have to be obeyed. And we will always look and if they’re not obeyed or any incorrect representations are made, then the consequences will follow.”

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