The return of rent-a-bank lending is the most serious threat in 20 years to states' ability to protect their residents from predatory lending. Proposed rules would make it easier for high-cost lenders to launder their loans through banks.
What is Rent-A-Bank?
The Rent-A-Bank Scheme | Center for Responsible Lending, regularly updated
"Predatory lenders are making loans of 100% APR or more in states with limits of 36% or less by laundering loans through an out-of-state bank that is not subject to state interest rate limits. This is a rent-a-bank scheme."
Payday lenders and online consumer lenders are starting to make usurious loans up to 160% in states where those rates are illegal by using banks, which are not subject to state rate caps, as a fig leaf. Banks have little to do with the loans, which they immediately sell.
Bank regulators shut down these schemes in the early 2000s, but two state-chartered banks, FinWiseBank and Republic Bank and Trust, both regulated by the FDIC, are again helping payday lenders evade the law in 28 states & DC
NCLC issue brief on rent-a-bank lending and threat to usury laws
FDIC / OCC Proposal Would Encourage Rent-a-Bank Predatory Lending | NCLC, December 2019
This issue brief explains the business arrangements between banks and lenders and legal issues with rent-a-bank lending. And it highlights the huge threat that an FDIC/OCC proposal poses to states' historic ability to limit interest rates and to protect their residents from predatory lending.
Rent-A-Bank In The News
Proposed Federal Banking Rule Would Unleash Predatory Lending in All 50 States | Press Release, Consumer Federation of America, September 4, 2020. "The OCC’s Plan Would Gut Longstanding Anti-Evasion Doctrine and Encourage Triple-Digit Interest Rate Loans That Violate State Rate Cap Laws."
DBO Launches Investigation Into Possible Evasion of California’s New Interest Rate Caps By Prominent Auto Title Lender, LoanMart | Press Release, CA Dept of Business Oversight (DBO), September 3, 2020
This article explains what the threat means to states like AZ and NC that took action against high cost payday lending. After a 15-year ban, could payday lending return to North Carolina? | Sophie Kasakove, The News & Observer, August 6, 2020
Advocates Praise D.C. Attorney General Suit Against Predatory High-Cost Rent-a-Bank Lender | NCLC Press Release, June 5, 2020
Advocates Condemn Rent-a-Bank Rule that Encourages Predatory High-Cost Loans; Call on Congress to Pass Federal 36% Interest Rate Cap Limit | NCLC Press Release, May 29, 2020
‘Rent-a-Bank’ Lending Practices Trigger Calls For Regulation By PYMNTS | March 11, 2020
Based on a paywalled article in the Wall Street Journal
by Hannah Wiley | The Sacramento Bee, December 18, 2019
Trump’s Bank Regulators Open the Door to More Predatory Lending by David Dayen | The American Prospect, November 19, 2019
"A new proposed rule would allow ‘rent-a-bank’ schemes that could permit unlimited interest rates on loans as long as they come via a chartered bank."
Trump Administration Declares Open Season on Consumers for Subprime Lenders
by Adam Levitin | Credit Slips, November 18, 2019
"The Trump administration has just proposed a rule that declares open season on consumers for subprime lenders. The Office of Comptroller of the Currency and the Federal Deposit Insurance Corporation (on whose board the CFPB Director serves) have released parallel proposed rulemakings that will effectively allowing subprime consumer lending that is not subject to any interest rate regulation, including by unlicensed lenders."
November 12, 2019 | NPR, All Things Considered
"Online lenders charging triple digit interest rates are dodging state laws banning such loans. The money is routed through banks that aren't regulated at the state level to get around the rules."
Toolkit for Advocates
National Consumer Law Center
Watch List - High-Cost Rent-a-Bank Loan
Info - Rent-a-Bank Loans
Letters & Comments
CEI Press Release on OCC "True Lender" proposal | September 8, 2020
AZ Coalition letter to OCC on "True Lender" proposal, submitted with CEI's Comments to the OCC (below).
CEI letter to AG and AZDFI requesting action re: Rent-A-Bank | June 19 letter, updated July 15, 2020
AZ coalition comments on FDIC Notice of Proposed Rulemaking etc. | February 4, 2020
National coalition comments on OCC Notice of Proposed Rulemaking etc. | signed by CEI, January 21, 2020
National coalition letter to OCC and FDIC opposing their support for predatory small business lender using rent-a-bank scheme | signed by CEI, October 24, 2019
CEI comment to FDIC re Small-Dollar Lending | January 22, 2019