Today’s departure of FDIC Chair appointed by former President Trump presents a new opportunity for the agency to stop illegal loans with 100%+ APR that are exploiting financially vulnerable families
With a new chairman taking the helm of the Federal Deposit Insurance Corporation (FDIC), the National Community Reinvestment Coalition (NCRC) joined with more than a dozen other organizations in calling for the FDIC to “stop permitting its supervised institutions to front for predatory lenders evading state interest rate limits.” The letter is addressed to the FDIC’s Board of Directors: Incoming Acting FDIC Chairman Martin Gruenberg, Consumer Financial Protection Bureau Director Rohit Chopra, and Acting Comptroller of the Currency Michael Hsu.
“Surveys repeatedly find that voters are opposed to high-cost predatory lending,” said Adam Rust, Senior Policy Advisor at NCRC. “And yet the FDIC has permitted its banks to use their charters to enable these practices. Now that the Board of the FDIC is under new leadership, it is the time to close this loophole.”
The letter, in part, states: “FDIC-supervised banks are helping predatory lenders make loans up to 225% APR that are illegal in almost every state. These rent-a-bank schemes often operate under the guise of innovative ‘fintech’ products, even as their high-cost, high-default business model inflicts harms similar to those inflicted by traditional payday lenders…. Rent-a-bank schemes have flourished at FDIC banks in the past few years and it is time for that to come to an end.”
In a rent-a-bank lending scheme, a company that is not a bank runs a lending program and takes most of the profit, but a bank nominally approves, initially funds, and puts its name on the loans. This arrangement helps the true lender – the nonbank company – to evade state interest rate limits, which don’t apply to banks.
Forty-two states and DC currently have at least one predatory lender using a rent-a-bank partnership. Rent-a-bank loans are offered at check-cashing stores, online, and even at pet stores, auto mechanics, and furniture stores.
The advocates’ letter points to President Biden’s pledge to no longer allow the schemes, a bipartisan vote in Congress disapproving them, broad bipartisan opposition to evasion of state rate caps including a letter from 413 groups representing all 50 states, recent action from the Office of the Comptroller of the Currency to stop these predatory loans, and numerous reasons why the FDIC as a bank watchdog has a responsibility to shut down these illegal operations.
“The FDIC appears to have done nothing to curtail the predatory lending that has exploded on its watch. The OCC, in contrast, appears to have stopped the two OCC-supervised banks that were enabling high-cost installment loans even before Congress overturned the OCC rule. Unfortunately, the end to the OCC fake lender rule did not end rent-a-bank schemes, which are continuing using FDIC-supervised banks,” the letter states.
Is New Mexico one of the 42 states that have at least one predatory lender using a rent-a-bank partnership? Thank you!