Predatory lenders use rent-a-bank schemes to avoid the usury limits of the consumer’s state, by seeking to bootstrap onto federal rate exportation rights available only to banks. These predatory non-bank lenders claim that they are only arrangers or servicers of credit originated by a bank. NCLC’s Consumer Credit Regulation § 3.5.4 sets out several challenges to such arrangements—such as that the nonbank is the true lender or has violated state law as to arrangers of credit.
But what about state consumer protection laws other than interest rate limits?
This article from NCLC’s Digital Library focuses on less-known angles to challenge rent-a-bank schemes, based on the reality that federal preemption available to bank-originated credit is not so extensive as many predatory lenders and banks assume. When their assumptions are wrong, consumers may have powerful remedies to rectify predatory lending practices.