Payday/High-cost Loans

CFA Commends D.C. Attorney General Racine for Filing Lawsuit Against Predatory Lender that Utilized Rent-A-Bank Scheme to Evade D.C.’S Rate Cap

Elevate Offered Loans to D.C. Residents with Interest Rates Up to 42 Times the Legal Limit

Washington, D.C. – CFA applauds District of Columbia Attorney General Karl Racine for filing a lawsuit against Elevate, an online lender, for engaging in misleading business practices and deceptively marketing high-cost loans well above the District’s interest rate cap. Elevate sold two short term loan products to District residents that carried interest rates between 99 and 251%, up to 42 times the legal limit in D.C. In two years, Elevate has made 2,551 loans to residents well above the maximum interest rate of 24% for lenders that disclose their rate in contracts and 6% for those that do not.

“While federal regulators are failing to take enforcement actions and failing to regulate, Attorney General Racine has stepped in to protect consumers and hold predatory lenders accountable for their harmful actions,” said Rachel Weintraub, Legislative Director and General Counsel with CFA. “Interest rate caps are the most effective tool states have to protect their residents from predatory lenders and companies should be held accountable for knowingly and deceptively evading those caps.”

“This lawsuit should serve as a reminder for Attorneys Generals that they have the power to crack down on predatory high-cost lending and rent-a-bank schemes to enforce their states’ interest rate cap,” said Rachel Gittleman, Financial Services Outreach Manager with the Consumer Federation of America. “Especially during the current pandemic and financial crisis, it is critical that consumers are protected from the consequences of companies seeking to evade state laws to continue to prey on them with triple digit interest rates.”

According to the lawsuit filed by Attorney General Racine, in order to evade D.C.’s cap, Elevate partnered with two state chartered banks to originate the loans. Forty-five states, as well as D.C., have interest rate caps on many types of small loans; however, banks are generally exempt from these state caps. In recent years, high-cost lenders have taken advantage of this loop hole by entering into rent-a-bank schemes. Through these schemes, the lenders launder their loans through banks, but then purchase back the loans or receivables to continue to charge exorbitant interest rates.

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation have proposed rules, which the OCC finalized recently, to allow banks to sell, assign, or transfer a loan and let the interest rates permissible by the bank remain permissible after the transfer. This allows high-cost lenders to evade state interest rates. CFA, along with numerous other consumer, civil rights, faith, and small business organizations, strongly opposed the proposed rules. However, the lawsuit filed in the District of Columbia argues that Elevate is the true lender, as they fund the loan, reap the benefits, and take on the risk of the loan. The OCC and FDIC rules do not address this issue.

“We commend AG Racine for stepping in to protect consumers and enforce the District’s interest rate cap, especially at a time when so many consumers are struggling in the midst of the COVID-19 economic crisis,” Weintraub continued.

Contact: Rachel Weintraub, 202-939-1012