WASHINGTON–Consumer groups are blasting the Office of the Comptroller of the Currency (OCC) for a final rule it says “encourages online non-bank lenders to launder their loans through banks so they can offer high-cost triple-digit loans in states where such loans are illegal.”
The groups said the rules, which apply to so-called rent-a-bank schemes were strongly opposed by a bipartisan group of attorneys general as well as by numerous community, consumer, civil rights, faith and small business organizations and may face legal challenges. At least 45 states and the District of Columbia cap rates on many installment loans.
“The last thing we need during the COVID-19 crisis is more predatory lending or schemes to evade state interest rate caps. Interest rate limits are the simplest and most effective protection against predatory lending, and states have limited interest rates since the founding of our nation,” said Lauren Saunders, associate director of the National Consumer Law Center. “It’s deeply disturbing that the OCC is encouraging rent-a-bank schemes to evade state laws that prohibit triple-digit loans.”
‘Failed to Crack Down’
“The FDIC and OCC have failed to crack down on banks that are enabling predatory lending aimed at families and small businesses. Now, OCC leadership is issuing a rule that could facilitate these schemes and make a dangerous environment for borrowers even worse,” said Rebecca Borné, senior policy counsel at the Center for Responsible Lending.
According to the NCLC, high-cost online lenders, including Opploans, Elevate’s Elastic and Rise, Enova’s NetCredit, LoanMart’s Choice Cash, EasyPay, and Personify Financial, “launder their loans through banks such as Republic Bank & Trust and FinWise Bank” in order to skirt state laws so they can pedal predatory triple-digit interest rate loans to consumers.
“Most of the rent-a-banks are FDIC supervised. World Business Lenders uses OCC-supervised Axos Bank to make predatory loans to small businesses,” the NCLC said.
The NCLC’s website has a Predatory Rent-a-Bank Loan Watch List that it said describes high-cost rent-a-bank schemes and where they operate.
A Return to an Old Scheme
The NCLC explained banks are generally exempt from state rate caps that cover non-bank payday, car-title, installment, and other online lenders.
“For many years, high-cost lenders have attempted to take advantage of this exemption by entering into rent-a-bank schemes by which they launder their loans through banks and then purchase back the loans or receivables and continue to charge high rates that would be illegal for the non-bank lenders to charge directly. In the early 2000s, federal bank regulators shut down rent-a-bank arrangements,” the NCLC said. “The new rule will encourage a resumption of these schemes. The rule states that when a bank sells, assigns, or otherwise transfers a loan, interest permissible prior to the transfer continues to be permissible following the transfer.”