Message to the incoming FDIC Chairmen: Crackdown on Rent-a-Bank Loans

Consumer advocates call for new executives at Federal Deposit Insurance Corp. to sever partnerships between banks and fintechs that result in borrowers paying annual interest rates of up to 225%.

Fifteen consumer groups called for a crackdown in a letter to Democrat-appointed members of the FDIC board, while Chairwoman Jelena McWilliams, a Republican nominee, prepared to step down on Friday.

The FDIC “appears to have done nothing to stem the predatory lending that has exploded under its oversight,” the National Consumer Law Center and other groups wrote.

The FDIC was criticized during the tenure of outgoing Chair Jelena McWilliams for its oversight of banking partnerships where consumers paid triple-digit interest rates.

Bloomberg News

Consumer groups argued that fintechs are circumventing state interest rate caps by working with a handful of FDIC-regulated banks that have the ability to export their home state interest rate rules. The FDIC should ensure that banks end partnership programs and end their “abusive lending practices,” the groups wrote.

“These rent-a-bank schemes often operate under the guise of innovative ‘fintech’ products, although their expensive business model with high default rates causes similar damage to traditional payday lenders,” the groups wrote.

The Online Lenders Alliance, which represents some of the non-bank businesses identified by the consumer associations, said its members are an important source of credit for consumers whose credit histories often do not qualify them for loans from traditional banks.

The group fought efforts in Congress to limit annual interest rates to 36%, saying in a November news release that such legislation would “restrict access to credit and eliminate important financial options for hard-working Americans.”

For her part, McWilliams has pushed back criticism of the FDIC’s oversight of the partnerships. At a 2019 congressional hearing, she said said that the agency “would not allow the banks to evade the law.”

The consumer groups addressed the letter to the FDIC’s three Democratic board members: Martin Gruenberg, who is expected to become acting chairman of the agency if McWilliams resigns; Director of Consumer Finance Protection Office Rohit Chopra; and Deputy Comptroller of Currency Michael Hsu. Once McWilliams resigns, the agency will no longer have Republican board members.

The letter’s co-signatories included the National Community Reinvestment Coalition, the Center for Responsible Lending, the Consumer Federation of America, the NAACP, and Latino civil rights group UnidosUS.

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