Washington D.C. – While there is no good answer, consumers still deserve an explanation why Federal Deposit Insurance Corporation Chairwoman Jelena McWilliams advanced a proposal to allow predatory lenders to sidestep state interest rate caps by funneling loans through chartered banks — a scheme known as “Rent-a-Bank.” McWilliams’ appearance today before the House Financial Services Committee presents a golden opportunity. Under the Trump administration’s proposal, payday lenders would be permitted to flout the law in 26 states & DC and charge interest rates as high as 160%.
“Why would Chairwoman McWilliams help payday lenders flourish in states that have taken a stand against abusive interest rates? Perhaps she can illuminate how a triple digit interest payday loan is any less predatory when it’s laundered through a chartered bank,” said Jeremy Funk, spokesman for Allied Progress. “Or we could just call it what it is: the latest Trump administration effort to enrich the payday lending industry that has given millions of dollars to the President’s campaign and personal businesses.”
The FDIC/OCC’s Rent-a-Bank proposal follows the Trump-Kraninger CFPB’s proposal to permanently undo a critical protection against the payday loan debt trap, the ability-to-repay standard. The payday industry has already padded its profits by nearly $2 billion thanks to the administration’s decision in August to delay the implementation of the safeguard that would keep payday lenders from approving high-interest loans – that average nearly 400% APR — to vulnerable people they know cannot pay back them back in time.
WHAT YOU NEED TO KNOW:
FDIC Chairwoman Jelena McWilliams: Opening The Doors For Predatory Lending
Consumer Advocates Have Been Dismayed At FDIC Chairwoman Jelena McWilliams’ Efforts To Ease Payday Lenders Use Of The “Rent-A-Bank” Scheme To Bypass State Interest Caps.
On November 19, 2019, Federal Deposit Insurance Corporation Chairwoman Jelena McWilliams Led The FDIC Board In Pushing A Proposal That Will Allow Predatory Lenders To Engage In The “Rent-A-Bank” Scheme. “The FDIC voted to issue its Madden fix rule, with one dissenting vote from Martin Gruenberg.” [Video of FDIC Board Meeting – November 19, 2019 (45:21), 11/19/2019]
In November 2019, The Center For Responsible Lending Criticized An FDIC And OCC Proposal That Would Allow Payday Lenders To “Funne[l] Their Loans Through A Chartered Bank” To Avoid State Interest Rate Caps – “Commonly Known As A ‘Rent-A-Bank’ Scheme” – As It Would Allow Payday Lenders To “Do Whatever The Bank Could Do.”
In November 2019, The FDIC And OCC Proposed A Rule That Would “Effectively Eliminate Regulations On Payday Lending And Interest Rates” By Allowing Payday Lenders To “Funne[l] Their Loans Through A Chartered Bank, Commonly Known As A “‘Rent-A-Bank’ Scheme.” [David Dayen, “Trump’s Bank Regulators Open the Door to More Predatory Lending,” The American Prospect, 11/19/19]
Debbie Goldstein, The Executive Vice President At The Center For Responsible Lending, Suggested The OCC And FDIC Proposal Would Allow Banks To Hand A Loan “Off To Anybody” Who Could Then “‘Do Whatever The Bank Could Do.’” [Victoria Guida, “UPDATED: Consumer groups say OCC, FDIC proposal could encourage predatory loans,” Politico Pro,11/19/19]
In November 2019, National Consumer Law Center Criticized The FDIC And OCC Proposal Saying It Would “‘Encourage Predatory Lenders To Try To Use Rent-A-Bank Schemes With Rogue Out-Of-State Banks To Evade State Laws.’”
Lauren Saunders, Associate Director Of The National Consumer Law Center, Stated That The FDIC and OCC Proposal Would “‘Encourage Predatory Lenders To Try To Use Rent-A-Bank Schemes With Rogue Out-Of-State Banks To Evade State Laws That Prohibit 160% Loans.’”[Press Release, National Consumer Law Center, 11/18/19]
Payday Lenders Have Already Indicated They Will Use “Rent-A-Bank” Partnerships To Attempt To Bypass California’s New Interest Rate Cap.
Payday Lenders Have Already Signaled They Will Use Rent-A-Bank Schemes To Bypass A New California State Law Capping The Interest Rates Of Certain Loans To “36% Plus The Federal Funds Rate” – One Lender Even Said “‘There’s No Reason Why We Wouldn’t Be Able To Replace Our California Business With A Bank Program.’”
In October 2019, California Governor Gavin Newsome Signed A Law That Would “[Subject] Installment Loans Of Between $2,500 And $9,999 To A Rate Cap Of 36% Plus The Federal Funds Rate.” [Kevin Wack, “High-cost lenders already seeking ways around crackdown in California,” American Banker, 10/15/19]
After The Bill’s Signing, The Leadership Of Payday Lenders Enova International, Elevate Credit And Curo Group Holdings – Who “Last Year Accounted For Roughly One-Quarter Of All Loans That Would Be Covered By The New Law And Had APRs Of At Least 100%” – All Suggested That “Bank Partnerships Will Allow Them To Continue Charging High Rates In California.” [Kevin Wack, “High-cost lenders already seeking ways around crackdown in California,” American Banker, 10/15/19]
- “‘There’s No Reason Why We Wouldn’t Be Able To Replace Our California Business With A Bank Program,’ Said Enova CEO David Fisher.” [Kevin Wack, “High-cost lenders already seeking ways around crackdown in California,” American Banker, 10/15/19]
- “[Curo Group Holdings] CEO Don Gayhardt Said That The Wichita, Kan., Firm Has Had A Lot Of Practice In Adapting To State Regulatory Changes.” [Kevin Wack, “High-cost lenders already seeking ways around crackdown in California,” American Banker, 10/15/19]