Advocates Slam FDIC Proposed Rule for Industrial Loan Companies as Invitation for Predatory Lending

FOR IMMEDIATE RELEASE: July 2, 2020

National Consumer Law Center contacts: Stephen Rouzer (srouzer@nclc.org) or Lauren Saunders (lsaunders@nclc.org)

The bank regulator’s plan, described as “recipe for disaster” and as a way to “fuel financial exclusion,” provides an avenue for lenders to evade state laws that cap interest rates and to harm families suffering most in this economic downturn. 

WASHINGTON, D.C. – The National Consumer Law Center, on behalf of its low income clients,  joined with a broad coalition of advocacy organizations in two public comment letters warning the Federal Deposit Insurance Corporation (FDIC) that its proposed rule for chartering additional underregulated Industrial Loan Companies (ILCs) would expand predatory, high-interest lending. The plan would grant the predominantly online non-bank companies that are approved for an ILC with preemptory powers over state consumer protection laws, including interest rate caps. The FDIC is already turning a blind eye to rent-a-bank schemes where non-bank lenders piggyback off ILC and bank charters to issue loans of around 100% APR and higher.

The first, more detailed comment letter was submitted by the following civil rights and consumer organizations: National Consumer Law Center (on behalf of its low-income clients), Center for Responsible Lending (CRL), Americans for Financial Reform Education Fund, Consumer Action, Consumer Federation of America, The Leadership Conference on Civil and Human Rights, NAACP, National Association of Consumer Advocates, National Association for Latino Community Asset Builders, UnidosUS, and U.S. PIRG.

The second, short comment letter was submitted by several leading civil rights, community, consumer, and faith groups. Full text of the short letter is at bottom.

The longer, more detailed comment letter states in part:

“By permitting unprecedented blending of commercial and financial activities, and by making it easier than ever to make high-cost loans above states’ interest rate limits, this proposal is a recipe for disaster. And no one will feel the misery worse than the millions of households, disproportionately households of color, who are targeted by the abusive lending the proposal will proliferate….

“Adding the new label ‘fintech’ to high-cost lending may attract investors and make it easier for banking regulators to justify their support, but it doesn’t soften the blow high-cost loans land on struggling families.

“[T]he proposal wholly fails to consider the strong likelihood that it will cause a significant increase in predatory lending, either directly by companies that acquire ILCs or obtain ILC charters, or indirectly through increased rent-a-bank schemes with ILC banks.”

The short comment letter states in part:

“These loans target financially distressed individuals, compound their debt burden, and leave them worse off. High-cost lenders also disproportionately prey on communities of color, stripping them of income, widening the racial wealth gap, and more deeply entrenching systemic racism. Rather than promote financial inclusion, as they claim, high-cost lenders fuel financial exclusion.”

Additional Background

In March, the FDIC approved two new ILC charters, the first in over a decade. In so doing, the FDIC failed to adequately address concerns the agency itself has long had about its authority to effectively supervise ILCs.

The FDIC’s proposed ILC rule is among the attacks on state usury limits by federal banking regulators in recent years. These attacks include a proposed Office of the Comptroller of the Currency (OCC) “special purpose charter” and also rules issued by the FDIC and OCC that make it easier for banks to essentially rent out their charter to non-banks that then try to use the charter’s power to preempt state rate caps.

Full text of the short letter:

July 1, 2020

The Honorable Jelena McWilliams

Chairman

Federal Deposit Insurance Corporation

1776 F Street, NW

Washington, DC 20006

Delivered electronically

Re: Comments on FDIC Notice of Proposed Rulemaking, Parent Companies of Industrial

Banks and Industrial Loan Companies

Dear Chairman McWilliams,

The undersigned civil rights, community, consumer, and faith organizations write to strongly oppose the FDIC’s proposed rule on industrial banks and industrial loan companies (together, “ILC”s), as well as the agency’s approval of new ILC charters, in light of the threats these charters pose to state interest rate limits and, consequently, to consumers–particularly to those most financially vulnerable.

Interest rate limits are the single most effective tool states have to protect their residents from predatory loans. Predatory loans include payday and car title loans that often carry annual interest rates as high as 300% or more. Predatory loans also include high-cost installment loans and lines of credit with rates approaching and well exceeding 100%. These loans target financially distressed individuals, compound their debt burden, and leave them worse off. High-cost lenders also disproportionately prey on communities of color, stripping them of income, widening the racial wealth gap, and more deeply entrenching systemic racism. Rather than promote financial inclusion, as they claim, high-cost lenders fuel financial exclusion.

These high interest rates do not just make loans dramatically more expensive than mainstream loans. They also fundamentally alter the repayment structure, as borrowers can make payments for many months or even years without seeing any significant reduction in principal. As a result, these high rates also warp market incentives, where lenders succeed even if borrowers eventually default in great numbers.

This proposal comes amidst a number of attacks on state usury limits by federal banking regulators in recent years, as state-regulated lenders increasingly look to federal regulators to help them avoid state laws. The ILC charter is no different. By making it easier for predominantly online non-bank lenders to obtain bank charters, while avoiding consolidated supervision of the Federal Reserve, the FDIC would pave the way for non-banks to benefit from federal preemption far more easily than they otherwise could. Indeed, a law firm representing payday lenders recently wrote of the ILC proposal: “The proposed rule, together with the FDIC’s recent approvals of deposit insurance applications for [NelNet and Square], suggest the ILC charter as a viable alternative to the OCC’s fintech charter, which has been stalled by litigation.”

Several traditional FDIC-supervised banks are already facilitating evasion of state usury limits by non-banks through rent-a-bank schemes that the FDIC has not addressed. The loans these schemes peddle are among the most irresponsible loans on the market. Republic Bank & Trust (of Kentucky) and FinWise Bank (of Utah) are enabling high-cost lenders Elevate (100% APR), OppLoans (up to 160% APR), and/or Enova (up to 99.99% APR) to evade state rate caps in over half the states. Capital Community Bank (of Utah) is helping car title lender LoanMart evade state law in a number of states. LoanMart’s loans range from 60-222% interest; a typical loan is $2,500, 18-month loan at 90%, totaling $2,136 in interest. Transportation Alliance Bank, dba TAB Bank (of Utah) is helping EasyPay Finance make predatory loans for furniture, appliances, pets, auto repairs and other products, including a $1,500 loan at a rate of 188.99%. And Bank of Lake Mills (of Wisconsin) has enabled predatory small business loans, including a 120% APR $550,000 small business loan and a 74% APR loan secured by a second mortgage.

A disproportionate number of ILCs are also engaged in rent-a-bank arrangements; these are all chartered in Utah. First Electronic Bank is helping Personify Financial make loans up to 179.99% in 22 states. WebBank is involved in litigation alleging violation of Colorado’s state usury limit through a rent-a-bank arrangement. And Celtic Bank is helping OnDeck Capital and Kabbage make small business loans at up to 99% APR.

Experience has demonstrated that parents of ILCs pose excessive risks that the FDIC is unable to constrain. A number of ILC owners failed or nearly failed during the 2008 financial crisis, including predatory mortgage lender Fremont and predatory credit card issuer Advanta. The FDIC’s proposed plan, which claims to largely formalize the existing practices that have already proved inadequate, will not compensate for its lack of consolidated supervisory authority. The FDIC proposal also fails to give adequate consideration to the Community Reinvestment Act implications of an expansion of ILC charters, including convenience and needs, fair lending, and consumer protection.

We wholly reject any notion that approval of additional ILC charters may enable lenders to meet the credit needs of the financially vulnerable. To the contrary, they would make the financially vulnerable more so by facilitating the spread of predatory lending and undermining states’ ability to stop it.

We appreciate your consideration of our concerns.

Yours truly,

Americans for Financial Reform Education Fund, National

Arkansans Against Abusive Payday Lending, Arkansas

Arkansas Community Organizations, Arkansas

California Reinvestment Coalition, California

Center for Economic Integrity, Arizona

Center for Responsible Lending, National

Consumer Action, National

Demos, National

Indiana Institute for Working Families, Indiana

Jacksonville Area Legal Aid, Inc., Florida

The Leadership Conference on Civil and Human Rights, National

Maryland Consumer Rights Coalition, Maryland

Missouri Faith Voices, Missouri

National Association of Consumer Advocates, National

National Association of Consumer Advocates (NACACO), Colorado

National Consumer Law Center (on behalf of its low income clients), National

New Jersey Citizen Action, New Jersey

Public Good Law Center, National

Texas Appleseed, Texas

THE ONE LESS FOUNDATION, Pennsylvania and Colorado

Tzedek DC, District of Columbia

Virginia Citizens Consumer Council, Virginia

Virginia Organizing, Virginia

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Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has worked for consumer justice and economic security for low-income and other disadvantaged people in the U.S. through its expertise in policy analysis and advocacy, publications, litigation, expert witness services, and training.




Alert: IRS Sending Letters About Unactivated Stimulus Prepaid Cards

FOR IMMEDIATE RELEASE: July 2, 2020

National Consumer Law Center contacts: Stephen Rouzer (srouzer@nclc.org) or Lauren Saunders (lsaunders@nclc.org)

WASHINGTON, D.C. – People who have not received their Economic Impact Payments (EIP) should be on the lookout for letters being sent starting today by the Internal Revenue Service (IRS) telling them that they may have an unactivated prepaid card.

Last month, the IRS sent stimulus payments via the EIP prepaid cards instead of by paper checks to about 2 million taxpayers. Many people who were not expecting a prepaid card and did not know what it was threw it out, thinking it was a scam, or may have overlooked it.

These new letters, like the prepaid cards, are not a scam, though people should be aware of what they look like in case scammers try to impersonate them. The envelope can be viewed here and a sample letter is here.

Most importantly, the number that should be on the letter to call if someone has not received the card or has accidentally thrown it away is 800.240.8100. If the letter gives a different number people should not call it, as it is likely a scam.

“The EIP Card from Money Network Services is not a scam. It is a card being used by the IRS to distribute stimulus payments to some people. If you have any doubts or have not received your card, call 800-240-8100,” said Lauren Saunders, associate director of the National Consumer Law Center. However, she cautioned that that number will have information only about people who are being paid through the EIP card, not about payments made by paper check. “The EIP card can be cashed or used in numerous ways without incurring fees, including by transferring the funds to your bank account, using network ATMs, asking for cash back at a grocer or big box store, and by going inside to the teller window at virtually any bank or credit union,” she added.

For more details on what the EIP Card looks like and how to use it without paying fees, see NCLC’s issue brief The EIP Stimulus Payment Prepaid Card: Not a Scam; How to Avoid Fees, which includes links to a photo of a sample card and mailer.




Urge the Senate to Pass Another Stimulus Package!

Image of a masked and gloved woman holding an "Open" sign behind a storefront window

Urge your U.S. Senators to help families and the economy recover from COVID-19 by passing the HEROES Act

The coronavirus crisis is continuing, and the economic crisis is devastating families. With close to 50 million people unemployed, many more with reduced hours, and full economic recovery nowhere in sight, we need another stimulus package to help the economy recover and to prevent debt loads from destroying families for years to come.

The U.S. House of Representatives has passed the HEROES Act and now the Senate must do the same!

The HEROES Act is a $3 trillion dollar package in response to the COVID-19 crisis. In the consumer area, the bill provides desperately needed help for families dealing with the economic crisis, beyond the modest start in the previous CARES Act. The HEROES Act:

  • Provides immensely needed funds to help families cover necessities through increased stimulus payments, extended unemployment benefits, and, for the poorest families, increased support for food, rent, home energy, water, and basic broadband service.
  • Expands recently passed debt forbearance relief to most mortgages, federal and private student loans, and rent.
  • Stops debt collection activities that endanger stimulus payments, wages, bank accounts, homes, utilities, and cars.
  • Creates a path to recovery by halting negative credit reporting and by requiring creditors to offer affordable repayment options.

Please email or call your U.S. Senators and tell them we need another stimulus package to help the economy and families to recover, and ask them to support the HEROES Act. Find contact information here.

Other Actions You Can Take

  • Write a letter to the editor of your local paper. Here’s how.
  • Tweet to your senators to pass the HEROES Act using #HEROESAct and #COVID19.

LEARN MORE about NCLC’s work on COVID-19 & Consumer Protections.




Statement of National Consumer Law Center Advocate in Support of The Emergency Broadband Connections Act of 2020

FOR IMMEDIATE RELEASE:  JUNE 29, 2020
National Consumer Law Center contacts: Jan Kruse (jkruse@nclc.org) or Olivia Wein (owein@nclc.org)

Washington, D.C. The National Consumer Law Center commends the leadership of U.S. Senator Ron Wyden, who joined with Senators Richard Blumenthal, Mazie Hirono, and Chuck Schumer to introduce The Emergency Broadband Connections Act of 2020, which would help low-income households afford home broadband service.

“Black, Hispanic, American Indians and Alaska Natives have lower broadband subscription rates than their White counterparts and communities of color have been hardest hit by the COVID-19 crisis,” said Olivia Wein, staff attorney at the National Consumer Law Center.  “The Emergency Broadband Connections Act of 2020 will enable telemedicine, distance learning, and online access to the workplace and marketplace for tens of millions of struggling low-income families and unemployed workers while protecting public health during the COVID-19 crisis. The bill also includes urgently needed enhancements to the federal Lifeline program to ensure that this service can meet the voice and data needs of low-income consumers during the pandemic,” said Wein.

The bill is also cosponsored by Sens. Brian Schatz, Kirstin Gillibrand, Edward Markey, Bernie Sanders, Sherrod Brown, Kamala Harris, Cory Booker, Jeff Merkley, Robert Menendez, Amy Klobuchar, Richard Durbin, Tammy Baldwin, Tina Smith, Chris Van Hollen, Michael Bennet,  Jacky Rosen, Patty Murray, Elizabeth Warren, Ben Cardin, Tom Udall, Jack Reed, Martin Heinrich, and Tammy Duckworth.




Affordable Broadband Service is a Racial Equity and Public Health Priority During COVID-19

Cross-posted with the United Church of Christ, OC, Inc. and the Leadership Conference for Civil and Human Rights

By Olivia Wein, National Consumer Law Center and Cheryl Leanza, United Church of Christ, OC, Inc.

If you are reading this on your smartphone or laptop, you are fortunate to have access to internet service. More than 20 million households in the United States do not have internet service at home. The main barrier? Cost.

Racial disparities with broadband service: According to census data, about 10 percent each of Black and Hispanic Americans and 13 percent of American Indians and Alaska Natives have no internet subscription compared to 6 percent of White households. And not all broadband access is equal: a disproportionate number of Black and Latino households rely on a smartphone (small screen) for their broadband connectivity. It is clear during this pandemic that working and learning via a smartphone with limited data and throttling is second-class access compared with using a laptop via wi-fi and an unlimited wired broadband connection. However, with the public health risks of COVID-19, internet access strategies that may have worked in the past for students, adults, and elders (through schools, libraries, the workplace, community centers, and free wi-fi at fast food restaurants) are no longer safe.

COVID-19 exacerbates broadband service as a public health issue: COVID-19 has ravaged communities of color. Older adults and those with chronic health conditions of all races and ethnicities are particularly at risk from coronavirus and must self-isolate. Telemedicine minimizes the transmission of the virus, but patients must have broadband to take advantage of remote health care services. Broadband in the home enables families to stay at home.

COVID-19 exacerbates broadband as an economic issue: The risk of job loss during the pandemic also falls more heavily on workers of color. Access to work opportunities, services, and benefits for recently unemployed workers requires broadband. Physical distancing is still the safest way to limit the spread of COVID-19 and broadband is needed to access commerce and banking.

COVID-19 exacerbates broadband as an education issue: During surges of coronavirus infection, the bedroom has become the classroom for students of all ages. Students without broadband can’t access classroom instruction. Even if COVID-19 infection rates continue to fall, in September many schools will likely blend at-home and in-class learning to maximize spacing among students. This means that broadband access will be important well into 2021 and beyond.

Opportunity to bring broadband to the home: The most economically distressed households must have access to affordable technology. Our health, our economy, and our educational competitiveness will not fully recover in the United States without it. Fortunately, Senators Wyden and Blumenthal have introduced the Emergency Broadband Connections Act of 2020, the Senate counterpart to Representative Veasey’s bill (H.R. 6881), which passed the House as part of the HEROES Act (H.R. 6800) on May 15. The Emergency Broadband Connections Act guarantees a $50 emergency broadband benefit — $75 in tribal areas — to every eligible low-income household in the country that makes a request to their Internet Service Provider (ISP) and provides a one-time discount for ISP-provided devices. The bill also expands the existing Federal Communications Commission low-income Lifeline program to offer unlimited voice minutes and texting. This is the Senate’s opportunity to address racial equity and, at the same time, enable telemedicine, distance learning, and online access to the workplace and marketplace from the home while also protecting public health.




Supreme Court Weakens Independence of Consumer Watchdog

FOR IMMEDIATE RELEASE: June  29, 2020
National Consumer Law Center contact: Jan Kruse (jkruse@nclc.org)

National Consumer Law Center Advocates’ Statement re: U.S. Supreme Court Decision Challenging the Structure and Constitutionality of the CFPB (Seila Law v CFPB)

Washington, D.C. – The U.S. Supreme Court today issued its decision in Seila Law LLC v The Consumer Financial Protection Bureau. In a 5-4 decision, the Court, struck down as unconstitutional a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act that restricts the President’s ability to remove the director of the Consumer Financial Protection Bureau (CFPB) except for cause. Nonetheless, three of those justices, along with the four dissenters, held that the for-cause provision could be severed from the remainder of the Dodd-Frank Act, leaving the remainder of the CFPB intact.

“The Seila Law decision leaves the CFPB intact, but weakens the Director’s independence, making it more likely that the Director will have to think twice before crossing politically powerful financial industry players that have the ear of the President. This is unfortunate, because the CFPB should not be thinking about political ramifications when deciding whether to bring an enforcement action or to enact rules to address consumer protection problems. We have seen in this Administration how agency heads who have dared to express independent views have been short-lived, and it is unfortunate that the consumer watchdog has lost the critical independence that Congress gave it when addressing the fallout from the 2008 financial crisis,” said Lauren Saunders, associate director of the National Consumer Law Center. “Nonetheless, the CFPB survives as an agency with the rest of its critical consumer protection tools intact, and it will be up to CFPB directors to do their best to resist political pressure not to do their jobs.”

NCLC, as Counsel of Record, joined by others, filed an amicus brief that argued that, if the Supreme Court found the for-cause provision unconstitutional, it should sever that provision and preserve the remainder of the Dodd-Frank provisions establishing the CFPB, as Congress intended. That is exactly what the Court did.

“Severing the ‘for cause’ provision and allowing the CFPB to otherwise continue intact is the appropriate remedy. That result gives effect to the express language of the Dodd Frank Act’s severability clause and comports with the traditional doctrine of severability that provides that a court should nullify no more of a statute than is necessary,” said National Consumer Law Center Director of Litigation Stuart T. Rossman. “Undoing Congress’s sweeping restructuring of financial regulation by eliminating the CFPB instead of severing the for-cause removal provision would have contravened Congress’s intent to establish a sole federal regulator charged with stabilizing the marketplace and protecting consumers.”

Other groups who joined the amicus brief filed by NCLC were: Center for Consumer Law and Education Center  (a joint partnership between West Virginia University College of Law and Marshall University); the UC Berkeley Center for Consumer Law & Economic Justice; The housing Clinic of the Jerome N. Frank Legal Services Organization at Yale Law School; Consumer Action; and Professor Craig Cowie (Asst. Professor of Law and Director of the Blewett Consumer Law & Protection Program at the University of Montana Alexander Blewett III School of Law.




Advocates Decry Congress’s Failure to Protect Student Loan Borrowers and Taxpayers from School Fraud and Closures

FOR IMMEDIATE RELEASE: June 26, 2020
National Consumer Law Center contact: Jan Kruse (jkruse@nclc.org)

Boston – National Consumer Law Center advocates are extremely disappointed that today Congress  failed to override President Trump’s veto of Congress’s prior bipartisan vote to protect federal student loan borrowers by striking down the Department of Education’s new borrower defense regulations. The severely watered-down regulations, promulgated by Secretary Betsy DeVos’s administration, are now set to go effect on July 1. The DeVos rules will limit relief to only about 3% of defrauded student borrowers, and only 1% of schools guilty of misleading students would have to reimburse taxpayers, leaving hundreds of thousands of students trapped deep in debt with no job and a worthless degree.

“Congress and President Trump had the chance to stand with Americans struggling against fraud, corruption, and bureaucratic red tape, but instead they walked away,” said National Consumer Law Center attorney Persis Yu. “Veterans and low-income communities of color have borne the brunt of predatory schools’ worst practices, and the schools’ use of arbitration clauses have kept many of their misdeeds secret and out of the courts. The Department of Education should have provided students with a fair path to access the loan relief promised by the Higher Education Act and protected their right to have their day in court. Instead, it gave the schools the green light to defraud students with impunity and continue receiving taxpayer dollars.”

This past March, Congress presented President Trump with Senate Joint Resolution 56, which applied the Congressional Review Act to block the 2019 Borrower Defense to Repayment rule from going into effect and to preserve the existing rules protecting borrowers from school fraud and closures. The joint resolution was supported by broad coalitions of organizations representing veterans (who are disproportionately targeted by predatory schools for their GI Bill dollars), students, low-income consumers, civil rights groups, and advocates for education. Last December, a diverse coalition of 57 organizations wrote that that if the 2019 Borrower Defense Rule went into effect, it would do little to provide relief to students who have been lied to, and even less to dissuade colleges from systematically engaging in deceptive and illegal recruitment tactics. The group also charged that the rule fails to protect students, including first-generation college students, Black and Latino students, and military-connected students, who are targeted by and disproportionately enroll in predatory for-profit colleges. The DeVos rule makes relief all but impossible for them and fails to hold predatory schools who defraud students accountable.




Advocates Condemn FDIC Rule that Encourages Predatory High-Cost Loans; Call on Congress to Pass Federal 36% Interest Rate Cap Limit

FOR IMMEDIATE RELEASE: JUNE 25, 2020
Media Contacts: National Consumer Law Center: Jan Kruse (jkruse@nclc.org)
Center for Responsible Lending: Matthew Kravitz (matthew.kravitz@responsiblelending.org)
Americans for Financial Reform Education Fund: Diop Harris (diop@ourfinancialsecurity.org)

Washington, D.C. – Consumer advocates criticized the Federal Deposit Insurance Corp. (FDIC) for today finalizing a rule that encourages online non-bank lenders to launder their loans through banks so the non-bank lenders can charge triple-digit interest rates in states where high rates are illegal. The OCC finalized a similar rule last month. The rules were strongly opposed by a bipartisan group of attorneys general, as well as by dozens of 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 FDIC has been letting its banks help predatory lenders charge up to 160% APR in states where that is illegal, and this unlawful rule will only encourage these abusive rent-a-bank schemes. 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 FDIC and OCC are encouraging high-cost lending rather than working to protect people, especially low-income families and people of color who are being hit the hardest during the COVID-19 crisis.”

“Neither FDIC nor OCC leadership has taken meaningful action to stop the banks they regulate from providing a smokescreen for nonbank lenders to violate state interest rate caps. Even worse, the FDIC has now joined the OCC in issuing a rule that helps clear the runway for more of these predatory lending schemes to take off,” said Rebecca Borné, senior policy counsel at the Center for Responsible Lending.

Banks are generally exempt from state rate caps that cover non-bank payday, car-title, installment, and other non-bank lenders. High-cost online lenders have tried to take advantage of this exemption by laundering their loans through banks. Opploans, Elevate’s Elastic and Rise, Enova’s NetCredit, LoanMart’s Choice Cash, EasyPay, and Personify Financial charge 99% to 160% or higher but claim they are exempt from state interest rate limits because they use FDIC-supervised banks such as Republic Bank & Trust and FinWise Bank to originate the loans.  The banks then assign most of the interest and profits back to the online lenders or entities controlled by them. NCLC’s website has a Predatory Rent-a-Bank Loan Watch List that describes high-cost rent-a-bank schemes and where they operate. 

The FDIC’s 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. But last month, a Colorado court rejected that argument, finding that an online lender, Marlette (which operates under the Best Egg name) had to comply with Colorado’s interest rate limits.  The court found that the provision of the Federal Deposit Insurance Act giving banks the right to charge any rate permitted by their home state “by its plain language does not apply to non-banks, therefore federal preemption [of usury claims against nonbank assignees] does not apply.” Marlette charges up to 29.99%, which is not as sky-high as other high-cost rent-a-bank schemes but is still quite high on loans that can reach $35,000 or more, and is above the 12% allowed for unlicensed lenders in Colorado and even the 21% allowed for licensed lenders.

“As the Colorado court held, the Federal Deposit Insurance Act does not apply to non-banks, and the FDIC therefore has no authority to prevent states from limiting interest rates charged by non-bank lenders,” Saunders explained.

The new rules by the OCC and FDIC do not address whether the bank is the “true lender,” which impacts whether the interest rate is permissible even prior to the transfer. But earlier this month, new Acting Comptroller of the Currency Brian Brooks stated that the OCC plans to issue a new true lender rule to help stem litigation against the fintech lending industry, and that he expects the  FDIC to do the same.

“The FDIC and OCC are encouraging lenders to ignore state protections put in place to prevent the harm caused by unaffordable high cost loans. Congress needs to stop these abuses by capping sky-high interest rates nationwide. Families are facing acute financial distress because of the COVID-19 pandemic; the last thing they need is a lender taking advantage of the situation to snare them in a debt trap. said Linda Jun, senior policy counsel of Americans for Financial Reform Education Fund.

Additional Resources

Brief: FDIC/OCC Proposal Would Encourage Rent-a-Bank Predatory Lending, December 2019

Fact Sheet: Stop Payday Lenders Rent-a-Bank Schemes, November 2019

Website: Predatory Rent-a-Bank Loan Watch List by State

Op-Ed: Rent-a-bank schemes trample voters’ and states’ rights by Lauren Saunders, Feb. 8, 2018




CFPB Proposal Would Encourage Unaffordable Mortgage Lending and Threaten Access to Credit

FOR IMMEDIATE RELEASE: June 22, 2020
National Consumer Law Center contact:
 Jan Kruse (jkruse@nclc.org)

Washington, D.C. – Today, the Consumer Financial Protection Bureau released two proposed rules that together will fundamentally reshape the mortgage market at a time when the market is attempting to adjust to the pandemic and recession and access to credit for communities of color is already constrained.

“With the country facing the effects of a worldwide pandemic, the mortgage markets need stability and the continuation of a known system that provides sustainable access to credit. The CFPB should focus its resources now on providing stability and protection for homeowners, not in making major changes,” said Alys Cohen, staff attorney at the National Consumer Law Center. “The CFPB has reduced transparency by rolling back critical disclosure of fair lending data, refused to enforce important protections for homeowners when mortgage servicers fail to provide them information, and generally neglected the concerns of communities of color in favor of a deregulatory agenda, unconnected to the present circumstances. The decision to proceed with this major mortgage rulemaking now is especially concerning because the homeowners most at risk of losing access to affordable and responsible credit under the proposal, people of color and low-income borrowers, are also those most hard-hit by both the COVID-19 financial and health crisis, as well as the last mortgage meltdown during the Great Recession a decade ago.”

The CFPB’s proposals would change the circumstances in which a lender is presumed to have met the requirement of the Dodd-Frank Act that borrowers have an ability to repay their mortgages.  Instead of the current rule, which tracks the statute in requiring lenders to look at a borrower’s income in making this determination, the new rule would allow lenders to get a safe harbor from any enforcement of the statutory requirement so long as the loan is under an arbitrary price cap. While lower priced loans, unsurprisingly, have lower default rates, the CFPB’s own research shows that, holding constant for one major determinant of pricing, credit scores, Blacks and Hispanic Whites are denied mortgage loans more often than whites, thus suggesting that using pricing as a cutoff point will necessarily have a discriminatory impact on access to credit unconnected to ability to repay.

The proposals would also end the ability of lenders to rely on underwriting criteria established by Fannie Mae and Freddie Mac in meeting the statutory requirements. It is under this “GSE-patch” that a great deal of current lending in communities of color and in low-income communities is made currently. Rather than extending the GSE patch to provide stability to a market already roiled by economic uncertainty, the CFPB proposes to end it as soon as April 2021.

“Instead of continuing the GSE-patch to provide stability at a time of great market uncertainty, the CFPB is plunging ahead with rulemaking that would dramatically alter the rules of the game for mortgage lenders, borrowers, and our entire economy,” said Cohen. “Government, industry, and consumer and civil rights stakeholders must work together to develop sustainable mortgage lending models that do not risk a resurgence of abusive loans in the hardest-hit communities and that ensure opportunities to build wealth for all. The CFPB should focus its attention on pandemic response while building the long-term models for sustainable lending, rather than forcing through a rulemaking on limited data.




CFPB Announces Another Pilot Program Placing Financial Companies’ Interests Before Consumers

FOR IMMEDIATE RELEASE: June 18, 2020
National Consumer Law Center contact: Jan Kruse (jkruse@nclc.org)

Washington, D.C. – Today, the Consumer Financial Protection Bureau announced a pilot advisory opinion program designed to provide additional protections for financial institutions at the expense of consumers. Under the CFPB pilot, itself issued without notice and comment, financial institutions are invited to submit requests for regulatory clarifications in areas of “substantive importance.” The advisory opinions will then be issued by the CFPB, without notice-and-public comment, on the basis of confidential information submitted by the financial institution. Only entities subject to the CFPB’s jurisdiction may request these advisory opinions, and the advisory opinions will provide safe harbor protections for financial institutions under all major consumer protection laws. One of the priorities of the pilot program is to identify outdated, unnecessary or unduly burdensome regulations in order to reduce regulatory burdens on companies.

“The CFPB’s plan to reduce protections in areas of ‘substantive importance’ with no public input is offensive and contrary to the CFPB’s mandate,” said National Consumer Law Center Associate Director Lauren Saunders. “Now, more than ever, when communities of color are under siege, the CFPB must listen to their voices and those of all homeowners, borrowers, and families affected by financial industry abuses and put consumers first.”