WASHINGTON – Several consumer groups are criticizing a new proposal from federal regulators, saying it remains “silent” on “predatory rent-a-bank” lending schemes.
In a comment letter, the National Consumer Law Center (NCLC), on behalf of its low-income clients, the Center for Responsible Lending (CRL), and the National Fair Housing Alliance, told the FDIC, Office of the Comptroller of the Currency (OCC), and Federal Reserve Board that the regulators’ “Proposed Interagency Guidance on Third-Party Relationships: Risk Management” does nothing to address what they see as one of the biggest threats to consumers, particularly low-income people.
Specifically, the groups said the guidance is “silent” about rent-a-bank lending, whereby a bank rents out its charter to a financial company that is not a bank “to enable attempted avoidance of state consumer protection laws, in particular interest rate and fee caps, or state oversight through licensing regimes.”
The groups criticized what they called a “glaring omission” given the rise of rent-a-bank lending and Congress’ recent action in passing bipartisan legislation nixing an OCC rule that encouraged rent-a-bank arrangements.
‘Make Crystal Clear’
“Federal bank regulators should make crystal clear that banks may not facilitate non-bank’s end-run around state consumer lending laws. Bank regulators must put an end to ongoing rent-a-bank schemes,” said National Consumer Law Center Associate Director Lauren Saunders.
In the letter, the groups told regulators, “There are many legitimate purposes of bank partnerships with third parties, but assisting a third party in the violation or evasion of state laws is not one of them . . . . The core of our concerns with rent-a-bank schemes is that they facilitate predatory, unaffordable credit. Rent-a-bank relationships are especially risky to banks and harmful to consumers when they enable lending above the Military Lending Act’s (MLA) fee-inclusive 36% interest rate cap (MLA 36% APR). Lending above those rates violates the laws of a significant number of states and poses a number of other risks…”
The full letter can be found here.