Trump CFPB Director Kathy Kraninger Just Voted to Let Predatory Lenders Violate State Interest Rate Caps

Washington D.C. – Trump CFPB Director Kathy Kraninger, as a member of the FDIC Board, voted on Tuesday in favor of a proposal to allow predatory lenders to sidestep state interest rate caps by laundering loans through chartered banks — a scheme known as “Rent-a-Bank.” Sixteen states including California as well as Washington, D.C. have interest rate caps of 36% or lower for short-term loans. It was the Director’s latest gift to the payday loan industry following her proposed rule to scrap a critical consumer protection against the payday loan debt trap, the ability-to-repay standard.

“This is a slap in the face to all the states that didn’t wait for Washington to crack down on abusive interest rates,” said Jeremy Funk, spokesman for Allied Progress. “It’s the latest Trump administration effort to legitimize predatory lending — and it would expose even more consumers to the debt trap by attempting to render state-level protections useless. A pig in a dress is still a pig. Loans with APRs in the triple digits pose the same danger to vulnerable communities whether they come from a seedy payday loan shark or a well-known bank.”

Director Kraninger’s vote came on the heels of a surfaced video of payday industry executives bluntly discussing how campaign contributions to the Trump campaign has bought them access to his administration. Insiders revealed their plan for raising more campaign cash to secure a final CFPB payday rule that enriches them at consumers’ expense. The payday lending industry has already given over $2.2 million to Trump’s campaign and inaugural committees and its trade association spent an estimated $1 million holding its annual conference at Trump’s National Doral Golf Resort two years in a row.

Added Funk: “Director Kraninger has already helped pad the payday industry’s profits by over $1.7 billion by delaying the implementation of the ability-to-repay standard. The Rent-a-Bank scheme Kraninger now supports is another windfall for President Trump’s predatory lending donors that want to exploit even more vulnerable borrowers. Either all that campaign money from the payday loan industry bought more than just access to this administration – or Director Kraninger hopes to someday swing through the golden revolving door.”  

WHAT YOU NEED TO KNOW:

On November 19, 2019, CFPB Director Kathy Kraninger Voted To Move Forward A Proposal That Would Allow Payday Lenders To Use A Loophole To Violate State Interest Rate Caps

In November 2019, The FDIC And OCC Proposed A New Rule 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.”

The FDIC And OCC Have 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.” “Two top banking regulators, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), have proposed a controversial rule that could effectively eliminate regulations on payday lending and interest rates—a huge gift to predatory consumer finance. […] In practice, it would mean that any payday lender could evade interest rate caps or other state-level restrictions by funneling their loans through a chartered bank. This is sometimes 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]

On November 19, 2019, CFPB Director Kathy Kraninger Voted To Move Forward The Proposal Allowing Predatory Lenders To Utilize The “Rent-A-Bank” Scheme.

On November 19, 2019, CFPB Director Kathy Kraninger, A Member Of The FDIC Board Voted In Favor Of The Proposal That Would 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.” [Tweet by Evan Weinberger, 11/19/19, and Video of FDIC Board Meeting –  November 19, 2019 (45:21), 11/19/2019]

The Proposed FDIC And OCC Rule Would “Clarify” That Loans Originated By A Bank “Would Remain Pre-Empted From Any Interest Rate Caps, Even If Purchased By A Non-Bank.” The proposed rule, which the OCC announced Monday and which the FDIC will vote on today at a board meeting, would clarify the “valid-when-made” doctrine to assert that loans originated by a bank would remain pre-empted from any interest rate caps, even if purchased by a non-bank. All Republicans on the House Financial Services Committee have urged this step. OCC claims the new rule will “address confusion” stemming from the Madden ruling. The FDIC, where Republicans hold a 3-1 advantage on the board, is expected to approve the proposed rule. [David Dayen, “Trump’s Bank Regulators Open the Door to More Predatory Lending,” The American Prospect, 11/19/19]

  • The Proposed Rule Would Go Around The “Madden Ruling,” A 2015 Court Ruling In Madden V. Midland Funding Where The 2nd Circuit Court Of Appeals Found That “Any Loan Sold By A Bank To A Non-Bank Doesn’t Get The Pre-Emption-From-Interest-Rate-Caps Protection.” “But a 2015 court ruling in Madden v. Midland Funding threatened the whole effort. In that case, borrowers argued that any loan sold by a bank to a non-bank doesn’t get the pre-emption-from-interest-rate-caps protection. The 2nd Circuit Court of Appeals agreed, and the Supreme Court decided not to review the case in 2016.” [David Dayen, “Trump’s Bank Regulators Open the Door to More Predatory Lending,” The American Prospect, 11/19/19]
  • 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.’” “‘The FDIC and OCC proposal will 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,’ said Lauren Saunders, associate director of the National Consumer Law Center. ‘States have had the power to limit interest rates since the time of the American Revolution,’ she added.” [Press Release, National Consumer Law Center, 11/18/19]

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