SAN JOSE, Calif. — In one of his many campaign ads airing across California, presidential candidate Tom Steyer has touted the work of a nonprofit-owned bank he founded, portraying it as a counterweight to Wall Street corruption.

But while the Oakland-based institution has a well-regarded record of making socially responsible investments, its auto loan program has left behind a long trail of defaults and lawsuits against low-income borrowers in the state, a Bay Area News Group review of financial and legal documents found.

Beneficial State Bank — which Steyer co-founded with his wife, Kat Taylor, and served as board chairman until joining the presidential race in July 2019 — has filed lawsuits and won court judgments against 1,800 borrowers who fell behind on their payments over the past three-and-a-half years, out of more than 22,000 total loans, according to court records and data provided by bank executives.

Most of the lawsuits were concentrated in some of California’s poorest Central Valley counties. One lawyer who has represented borrowers in numerous car lending cases called the bank’s litigation strategy the most aggressive he had seen by an auto lender to collect on loans.

In interviews, a janitor, meat cutter, preschool teacher and hotel manager who defaulted on loans from Beneficial and were sued by the bank described spiraling into debt, unable to keep up with annual interest rates as high as 27.99% — only to lose their cars to repossession. None of them had any idea that the bank that brought them to court was founded by a billionaire candidate for president.

“I kinda thought we were getting robbed,” said Justin Casto, who works at an Oakdale meat company and received a 27.99% loan from the bank. “There’s no way I’m able to pay what they’re asking for, and my credit is so shot now it’s unreal.”

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The auto loan program came to Beneficial with its acquisition of a separate Central Valley bank in June 2016. Steyer and Taylor say they inherited that bank’s practices and have been significantly overhauling the business in order to help people with poor or no credit get cars: In January 2018, bank executives said, Beneficial capped interest rates for new loans at 19.99% and improved its underwriting model to successfully reduce defaults.

But Beneficial has continued to charge some borrowers who signed their loans before 2018 considerably higher rates, and taken them to court when they default — collecting on loans and interest rates that bank executives say they would not approve under their current standards. When a lender successfully sues a borrower, they’re entitled to garnish part of their paychecks to cover the balance of the loan.

Beneficial said it has made over 22,000 auto loans, including loans inherited from the acquisition, and that the 1,800 court judgments also include many cases that stem from those older loans. Executives point out that the large majority of borrowers are successfully repaying, and say that the bank has a responsibility to collect on defaulted loans in order to stay solvent and protect other customers’ deposits.

In an interview, Steyer — who gets no profit from Beneficial and has never been involved in its day-to-day management — said he was proud of the bank’s practices and stressed that “it’s trying to do well enough to stay in business to make more loans to help more people.”

“There is no attempt here to do anything except run a loan program that gives people access to capital in a way that will help their lives,” he said. “If it doesn’t work in some case … do we feel terrible about that? Sure. Is that working out for us? Absolutely not. Is there anything deceptive or is there something we’re trying to get out of that? Absolutely not. But in a loan program, are some people not going to make it? Yeah.”

Still, Steyer said he was “disturbed” that the bank had been charging borrowers as high a rate as 27.99%, saying he had “never heard that high number before.”

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Steyer, who made his $1.6 billion fortune through a San Francisco hedge fund, started Beneficial — originally named OneCalifornia — with Taylor in 2007. The purpose, they say, was to show how a bank with a public mission could serve as a tool for social good, just as the financial collapse was shaking public confidence in Wall Street.

The bank is owned by a nonprofit, the Beneficial State Foundation, which is mandated to reinvest all of its profits in the community. Steyer and Taylor, who serves as CEO, receive no financial benefit from Beneficial’s work, even though they’ve donated more than $110 million as capital for the bank.

Beneficial has launched respected programs helping fund small businesses, affordable housing developments and green energy projects. It refuses to invest in private prisons or fossil fuels and has received accolades from groups urging corporate social responsibility.

Beneficial got into the auto loan business through its June 2016 acquisition of the Central Valley bank Pan American. It aimed to transform the bank to serve used-car borrowers with poor credit and offer an alternative to predatory payday loans, executives said.

Beneficial executives said it took the company until January 2018 to restructure Pan American’s lending practices because of the need to rewrite its computer programs. The bank “had a software underwriting application system that everything was hardcoded in, in terms of credit profile and pricing,” Randell Leach, Beneficial’s chief operating officer, said in an interview.

In that year and a half, Beneficial continued making loans under the old system. The alternative, Leach said, would have been “shutting off the entire business.”

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The bank declined to identify the top rate it had charged a borrower before its new system went into place — but a review of dozens of Beneficial lawsuits found contracts with annual interest rates that ranged from 10.49% to 27.99%.

That range is higher than the national average, but not wildly so. Average interest rates for used car purchases in 2017, when many of the loans were inked, ranged from 4% to 19% depending on borrowers’ credit scores, according to the credit reporting firm Experian — although that didn’t include borrowers with no credit score. About 5% of Beneficial’s auto borrowers had no credit history at the end of 2018, according to the bank’s annual report.

It’s a market reality that people with poor credit have to pay higher rates. And experts in fair lending practices say that while APRs above 20% are high, they’re lower than many payday loan companies and other unregulated lenders, whose rates can reach into triple digits.

Still, “if what you’re trying to do is help people lift themselves up out of situations where their credit is poor, those kind of interest rates (in the mid-to-high-20% range) are self-defeating,” said Mark Chavez, a consumer lawyer who works on auto-lending cases and reviewed several of the bank’s contracts for the Bay Area News Group.

Last year, California passed a law capping loans up to $10,000 at 36%. Many of Beneficial’s auto loans are technically “retail installment sales contracts” between a car buyer and an auto dealer that are assigned by the dealer to Beneficial, which means that they aren’t covered by the new law and there’s no legal cap on their interest rate, experts said.

Other progressive leaders have pushed for much lower limits — a federal bill introduced by Steyer’s presidential rival Sen. Bernie Sanders and New York Rep. Alexandria Ocasio-Cortez would cap interest rates for almost all consumer loans at 15%.

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For Casto, paying a 27.99% interest rate meant that the $12,346 he borrowed from Beneficial to buy a used 2013 Dodge Journey in December 2016 would have cost him an additional $10,696 in interest payments over the course of the nearly five-year loan, according to the contract he signed.

He quickly fell behind, according to court documents, and the bank repossessed the car in December 2017 after he went about a month and a half without making a payment. A week after his car was repossessed, Beneficial completed its software upgrade and launched its new auto lending system, which included the 19.99% cap on new loan rates. But the bank didn’t give Casto the opportunity to refinance at that rate, he said.

The bank auctioned off the car and sued Casto for the balance in April 2018, and the interest continued to pile up as the case worked its way through the court system. By the time a judge ruled against him almost a year later, he owed Beneficial just over $15,800, including $2,500 in additional interest charges and $2,335 in attorney’s and court fees — for a car he drove one year.

Beneficial executives said they couldn’t comment on individual cases for confidentiality reasons, but that their loans have been a lifeline for thousands of other borrowers who would have been turned away by many other banks.

“Borrowers not paying back their loans is an unfortunate part of every lending institution, never more so than when you are lending to communities neglected by the rest of the financial system,” Taylor said in a statement. “We knew this would be true when we stepped in to lend where other banks would not.”

A Bay Area News Group review of court records in more than two dozen counties around the state found over 1,400 lawsuits filed by Beneficial in the last three-and-a-half years. After being presented with those figures, the bank confirmed they had won court judgments against 1,800 auto borrowers out of the 22,000 total loans — which means it has gone to court and won against about one out of every twelve.

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Chavez, the lawyer who has worked on scores of class actions against automobile lenders around the country, said that rate was substantial and noted that the bank appeared to move unusually quickly to sue borrowers.

“I have never seen such an aggressive utilization of litigation as a collection tool for an automobile loan portfolio,” he said.

Most auto lenders resort to litigation only in limited circumstances after other debt collection programs fail, Chavez said, adding that suing borrowers will “inevitably result in frequent default judgments, increased debts resulting from the imposition of attorneys’ fees, and seriously impact the credit of consumers.”

But Beneficial stresses that many of the lawsuits involved older loans that were made under Pan American, and say the bank doesn’t try to collect the full unpaid balance from every borrower it takes legal action against. It also avoids using third-party debt collectors. “Contrasting Beneficial Bank’s lending to other institutions is a false comparison” because of the bank’s focus on borrowers with poor or no credit, Leach said.

In dozens of cases reviewed by the Bay Area News Group, almost none of the borrowers made any legal filings, and judges ruled in Beneficial’s favor by default. Beneficial dismissed other cases voluntarily or after being unable to serve borrowers with legal documents, which means its total number of lawsuits against borrowers is higher than 1,800.

The large majority of the lawsuits were for loans signed before Beneficial overhauled the underwriting process in 2018. Experts say that it’s even more important for banks that serve low-credit customers to do enough due diligence to determine whether borrowers can afford the loans — and in general, high numbers of lawsuits can be a red flag.

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“It could be that in running a lending program for people with poor credit, a bank is trying to do the right thing for low-income communities,” said Carolyn Carter, the deputy director at the National Consumer Law Center. “But a bank that has an unusually high rate of lawsuits and repossessions doesn’t sound like a beneficial low-income car access program to me.”

Beneficial continues to sue borrowers such as Robert Holguin, a janitor who commutes 45 miles each way from Manteca to Dublin and was taken to court by the bank earlier this month for defaulting on a 23.99% interest loan he signed in 2017.

“I was sitting there paying it and paying it and paying it, and it seemed like what I owed barely went down,” Holguin said.

After Beneficial’s reforms to Pan American’s old practices, the average APR on the bank’s auto loans is now at 12.99%, executives said. In addition to the cap on new loan rates, the bankers said they improved their underwriting with practices like lowering the maximum ratio of debt to income a new borrower can have. The bank also launched programs lending to people with no credit history and drivers with licenses available to undocumented immigrants.

Financial data shows the bank has made progress. In December 2016, about 18% of Beneficial’s $77.1 million auto loan portfolio was more than 30 days past due or was not accruing interest, according to reports it filed to the Federal Financial Institutions Examination Council. By September 2019, the most recent report available, that rate was down to 9%.

Still, some of Beneficial’s former borrowers remain near financial ruin. In January 2017, JaNee Moore, a preschool teacher who lives in Stockton, got a 17.99% interest loan from Beneficial to buy a used Nissan Sentra for her daughter to commute to college.

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“I tried to keep up with it, but I just didn’t have enough,” Moore said. Beneficial repossessed the car in January 2018 when she was two months behind, and eventually won a judgment against her of $13,800, including more than $1,600 in attorney’s fees and $1,700 in interest racked up during the court case.

Now, $225 is garnished out of Moore’s monthly paycheck, according to a paystub she showed the Bay Area News Group, which she said goes to pay the bank back. Because of that, she said, she’s had to take out multiple payday loans to keep up with daily expenses — the exact type of financing Beneficial’s program is designed to help its borrowers avoid.

When she was told that the founder of the bank that sued her was the presidential candidate who shows up in commercials on her TV several nights a week, Moore laughed.

“Can he help me out?” she asked. “I’m in quite a bind.”

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