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February 4, 2022

The Honorable Martin Gruenberg
Acting Chairman
Federal Deposit Insurance Corporation
1776 F Street, NW
Washington, DC 20006

Rohit Chopra, Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20220

Michael Hsu, Acting Comptroller
Office of the Comptroller of the Currency
400 7th Street, SW
Washington, DC

Dear Acting Chairman Gruenberg, Director Chopra, and Acting Comptroller Hsu:

Accountable.US, Americans for Financial Reform Education Fund, Center for Responsible Lending, Consumer Action, Consumer Federation of America, Consumer Reports, the Leadership Conference on Civil and Human Rights, NAACP, National Association of Consumer Advocates, National Community Reinvestment Coalition, National Consumer Law Center (on behalf of its low-income clients), Public Citizen, U.S. PIRG, UnidosUS and the Woodstock Institute write to urge the FDIC to stop permitting its supervised institutions to front for predatory lenders evading state interest rate limits. 

FDIC-supervised banks are helping predatory lenders make loans up to 225% APR that are illegal in almost every state. These rent-a-bank schemes often operate under the guise of innovative “fintech” products, even as their high-cost, high-default business model inflicts harms similar to those inflicted by traditional payday lenders.

Last year, on a bipartisan basis, Congress expressed its strong disapproval of rent-a-bank schemes by adopting a resolution to overturn the Office of the Comptroller of the Currency’s (OCC) “fake lender” rule. President Biden, in signing the resolution, stated: 

“The … bill will protect borrowers against predatory lenders. In many states, these lenders are kept in check by caps on how much interest they can charge, but some loan sharks and online lenders have figured out how to get around these limits … — by using a partnership with a bank to avoid the state cap and charging outrageous interest… — some as high as 100 percent interest, which is astounding… 

“These are so called “rent-a-bank” schemes. And they allow lenders to prey on veterans, seniors, and other unsuspecting borrowers tapping in the — trapping them into a cycle of debt. And the last administration let it happened, but we won’t.”

The OCC’s effort to protect rent-a-bank schemes triggered an outpouring of criticism, including letters from 413 civil rights, community, consumer, disability rights, housing, labor, legal services, senior rights, small business, and veterans organizations representing all 50 states and the District of Columbia; a bipartisan group of 25 state attorneys general; the Conference of State Bank Supervisors; the National Association of Consumer Credit Administrators; 138 academics; faith groups; and the Military Officers Association of America, among others.

While the FDIC has not proposed a fake lender rule like the OCC’s, the FDIC appears to have done nothing to curtail the predatory lending that has exploded on its watch. The OCC, in contrast, appears to have stopped the two OCC-supervised banks that were enabling high-cost installment loans even before Congress overturned the OCC rule. Unfortunately, the end to the OCC fake lender rule did not end rent-a-bank schemes, which are continuing using FDIC-supervised banks.

We are aware of six rogue banks fronting for numerous high-cost non-bank consumer lenders, enabling loans up to 225% APR that are illegal for the non-bank lender to make directly. The schemes are as follows:

• Republic Bank and Trust (Kentucky-chartered) is enabling: 
  • Enova, which operates payday and installment lender CashNetUSA, to make NetCredit-branded installment loans at rates up to 99.99% APR;
  • Elevate to make Elastic-branded lines of credit at effective APRs up to 109% APR;
    
• FinWise Bank (Utah-chartered) is enabling:
  • Opportunity Financial, LLC (OppFi aka OppLoans) to make installment loans at rates up to 160% APR;
  • Elevate to make Rise-branded installment loans at rates up to 99%-149% APR (Elevate uses two additional banks to enable Rise loans as well, noted below);
  • American First Finance to make secured and unsecured installment loans for purchases at retailers including furniture, appliances, home improvements, pets, auto and mobile home repair, jewelry and body art at rates up to about 161% APR;
    

• Capital Community Bank (Utah-chartered) is enabling:

• Elevate Credit to make Rise-branded installment loans at rates up to 99-149% APR.

• Wheels Financial Group, LLC dba LoanMart (under the ChoiceCash brand) to make illegal auto title loans at rates up to 170% APR.  

• Axcess Financial, which operates the Check ‘no Go payday loan stores, to make installment loans under the Xact brand at APRs up to 225%.
• Total Loan Services to facilitate CC Connect-brand installments loans up to 225% APR, offered through a variety of payday and online lenders including EZ$Money Check Cashing, LoanMe, Lendly LLC, MoneyKey, Quickcredit.com, and SunUp Financial. 
• First Electronic Bank (Utah-chartered industrial loan company (ILC)) is enabling:

• Applied Data Finance, dba Personify Financial, to make loans up to 179.99% APR.

• Transportation Alliance Bank (TAB Bank) (Utah-chartered) is enabling:

• Duvera Billing Services dba EasyPay Finance to make loans at rates up to 188.99% APR through businesses across the country that sell auto repairs, furniture, home appliances, pets, wheels, and tires, among other items.

• Integra to make installment loans at rates up to 99-149% APR.
• Lead Bank (Missouri-chartered), like Capital Community Bank, is enabling LoanMe to make loans in certain states. LoanMe’s rates run from 85% APR into the triple digits.

Federal supervision and enforcement of the laws that apply to banks are no substitute for the state rate caps that rent-a-bank schemes evade. State interest rate limits are the most effective way to protect consumers from unfair, abusive and unaffordable loans in the absence of a national interest rate limit. 

Nearly every state prohibits the grossly high-cost installment loans described above. For example, 42 states and DC cap rates well below 100% for a $2,000, two-year installment loan. In addition, seventeen states plus DC have interest rate caps that prevent short-term payday loans, a number that has grown by several over the last decade. Voters have strongly endorsed interest rate limits. In recent years, overwhelming bipartisan majorities in both red and blue states, including Arizona, Colorado, Montana, Nebraska, Ohio and South Dakota have supported rate caps of 36% APR or less.

The FDIC has numerous reasons to stop its supervised banks from engaging in high-cost predatory lending. These rent-a-bank schemes:

• Are an abuse of the bank charter to facilitate loans for non-banks that are the true lender, helping them evade state laws.
• Lead to abusive lending practices as they divorce lender and borrower incentives, allowing lenders to succeed while causing severe harm to consumers.
• Pose a range of legal, safety and soundness, and reputational risks to banks.
• Carry a high risk of jeopardizing compliance with several federal laws, including the Military Lending Act, Community Reinvestment Act, the Equal Credit Opportunity Act, the Electronic Fund Transfer Act, the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.
• Contradict principles of responsible lending that banking agency guidance has consistently promoted.

Rent-a-bank schemes have flourished at FDIC banks in the past few years and it is time for that to come to an end. The FDIC has the tools that it needs to prevent its banks from fronting for predatory lenders that are evading state law and making grossly high-cost installment loans and lines of credit at 100% to 225% APR. Two decades ago, the FDIC, along with the other bank regulators, used its supervisory and enforcement powers to stop banks from helping short-term payday lenders evade the law. 

It is now time for the FDIC to put an end to modern predatory rent-a-bank schemes involving longer-term loans that are an even bigger, deeper debt trap.