Washington, D.C. — Today, the Federal Deposit Insurance Corporation (FDIC) issued a final rule that will encourage high-cost, non-bank lenders to launder their loans through banks in order to offer triple-digit interest loans in states with usury laws. The Office of the Comptroller of the Currency finalized a similar rule last month, however most banks participating in rent-a-bank schemes are FDIC-supervised.
“The FDIC’s rule will facilitate the spread of predatory, high-cost lenders, and promote the evasion of state usury laws during a time of unprecedented financial challenges,” said Rachel Weintraub, Legislative Director and General Counsel with the Consumer Federation of America. “CFA joined numerous other consumer, civil rights, faith, and small business organizations, as well as a bipartisan group of Attorneys Generals, to condemn these rules because they undermine state efforts to stop predatory lenders from taking advantage of consumers.”
“States have seen the financial wreckage caused by predatory lenders that target the financially distressed and leave them in a devastating cycle of debt,” said Rachel Gittleman, Financial Services Outreach Manager with CFA. “Consequently, states have enacted interest rate caps, which have proven to be the most effective way to protect consumers from unaffordable loans. The FDIC joins the OCC in paving the way for predatory lenders to circumvent state rate caps in the midst of a financial crisis, when they should be protecting consumers rather than enabling rent-a-bank schemes.”
These rules allow banks, which are generally exempt from state rate caps, to sell, assign, or transfer a loan to non-bank lenders and deem that the interest rates permissible by the bank remain permissible after the transfer. High-cost lenders take advantage of this exemption by entering into rent-a-bank schemes where they launder loans through banks to be able to charge exorbitant interest rates, well above state usury rates. Forty-five states, as well as D.C., have interest rate caps on many types of small loans.
“In the glaring absence of regulatory oversight, Congress must act to protect consumers from high-cost lending schemes,” stated Weintraub. “Rates on high-cost credit should be capped federally at 36% during the remainder of the COVID-19 emergency and its financial aftermath. Following a temporary fix, Congress must pass H.R. 5050/ S. 2833, the Veterans and Consumers Fair Credit Act, to permanently cap interest rates at 36% for all consumers,” she concluded.
Contact: Rachel Gittleman, 609-571-5953