WASHINGTON—Ahead of a Senate Banking Committee hearing on so-called “rent-a-banks,” NAFCU reiterated the association's concerns about companies taking advantage of regulatory loopholes and chartering schemes to expand their reach with financial offersings.
As CUToday.info has reported, most recently here, the issue has also seen outspoken opposition from a number of consumer groups and state attorneys general.
In a letter, NAFCU Vice President of Legislative Affairs Brad Thaler urged lawmakers to consider the risks these trends pose to consumers and the financial system.
Thaler cited the Office of the Comptroller of the Currency's (OCC) true lender rule as contributing to the reemergence of rent-a-bank schemes, which allows banks and federal savings and loan companies to provide their charter to online lenders so they can deliver high-cost loans with annual rates over 100 percent, evading state consumer protections and usury caps and promoting predatory payday lending.
Several states have filed suit against the OCC to try to overturn the rule.
‘Uneven Playing Field’
"These predatory payday lenders are operating on an uneven playing field, relying upon the benefits of the OCC’s federal preemption to circumvent consumer protections and place borrowers in harms’ way," Thaler wrote. "What is most concerning is the lasting damage this form of wealth extraction has on household financial security and on communities. Given the damage caused by these high-cost, unaffordable loans to borrowers’ balance sheets, it limits the ability for legitimate and responsible lenders to support those households and communities with productive credit."
Thaler further stressed credit unions' efforts to provide members with safe, affordable short-term, small-dollar loans and called on Congress to ensure vulnerable consumers – that are often the target of predatory lending – have access to safe products by allowing all credit unions to add underserved areas to their fields of membership.
‘Preying on Consumers’
"At a time when low-income consumers can least afford it, the OCC’s rule is enabling high-cost lenders to prey on consumers that are on even more precarious financial footing, which could threaten COVID-19 economic recovery efforts and the good work of consumer-friendly financial institutions like credit unions," Thaler said, urging lawmakers to support the Senate resolution under consideration to overturn the true lender rule and stop this “harmful” practice.
In line with rent-a-bank concerns, Thaler also raised NAFCU's concerns about fintech companies taking advantage of chartering options and loopholes to evade proper oversight in the financial system.