Capitol hearing examines “rent-a-bank” programs

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During a hearing on Wednesday 5 February before the House Financial Services Committee, representatives of several consumer groups said that “rent-a-bank” programs harm consumers through predatory lending.

The hearing was titled “Bank Leasing Plans and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps.”

Lauren Saunders, who is associate director of the National Consumer Law Center, said state-regulated lenders “lease their loans at up to 160% annual rates through banks in order to escape rate caps. state interest. These schemes are spreading across the country and are starting to explode. “

She noted that states have interest rate caps on non-bank installment loans, with a median cap on a $ 500 loan of around 37.5%.

The Rent-a-Bank program

Through the “rent-a-bank” method, she detailed, state-regulated lenders claim that they are “simply the agent, service provider or assignee of the bank” who finances the bank. the loan but then quickly sells the loan or receivables.

(In terms of general practice, lenders, including those who operate online, should partner with chartered banks.)

“Because the funds originally came from the bank, the lender claims that the state’s usury laws are pre-empted,” Saunders said.

She said the breakout would continue unless regulators step in or Congress steps in to limit interest rates to an APR of no more than 36%. She recommended that Congress pass the Veterans and Consumers Fair Credit Act to extend the 36 percent rate that applies to military personnel and their families.

Separately, Graciela Aponte Diaz, director of federal campaigns for the Center for Responsible Lending, said some publicly traded companies have said in their own remarks that they intend to continue what Diaz called programs. bank rental. In one example, she said Elevate Credit said it would bypass California laws that would cap interest rates on loans over $ 2,500.

As Elevate Credit put it, it expects it to be able to “continue to serve California consumers through sponsorship banking that is not subject to the same rate limits offered at the state level.”

She offered a list of other companies engaged in similar practices, such as LoanMart, where auto title lending rates range from 60 percent to 222 percent, and where bank sponsors are based in Utah. Testimonies from Diaz and Saunders identified three Utah-based banks linked to such programs.

“Only a small number of banks are involved,” Saunders said in his testimony, “but they are having a big impact.”

In one declaration published after the hearing, the Online Lenders Alliance, through CEO Mary Jackson, said: “Today’s hearing clearly demonstrates that many members of the House Financial Services Committee have more work to do. do to understand the borrowers of these types of financial products, why consumers trust them and their overall satisfaction with them. Bank-fintech partnerships lead to increased innovation and greater competition in the marketplace, providing consumers with loans that meet their unique requirements… these partnerships operate within federal law.

She went on to say that “what is puzzling is that the proposed national rate cap prevails over 43 state consumer credit laws and that some witnesses have complained that banking products cannot prevail over state law, but they agree with a national preemption. She said that only 1% of all consumer complaints in the Consumer Financial Protection Bureau’s database are related to these types of loans.

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