Emerging Threat of Rent-A-Bank Schemes

What is Rent-A-Bank? In the 1990s-mid 2000s, predatory lenders partnered with banks to evade state interest rate caps. In response, federal bank regulators — the FDIC, Federal Reserve Board, and OCC – cracked down on this practice. Now, under the Trump Administration, this scheme is reemerging and going unchecked. The FDIC and OCC have even issued proposed rules that could bless this subterfuge, allowing predatory lenders to issue loans of more than 100% APR in states that have interest rates caps of much less ofter around 36%.

Non-bank lenders such as Elevate, OppLoans, Enova, LoanMart, and World Business Lenders currently lend at outrageous rates in states where those rates are illegal under state law, through the use of rent-a-bank schemes with banks regulated by the FDIC or OCC. Neither regulator appears to have done anything to shut down these abuses.

How Voters Feel About Rent-A-Bank Schemes

Voters across the country and political spectrum are concerned that some high-cost non-bank lenders arrange loans through banks at rates higher than state laws allow, according to a poll commissioned by the Center for Responsible Lending (CRL) and conducted by independent polling firm Morning Consult.

Key takeaways from poll on rent-a-bank:

Two-thirds of voters (66%) are concerned about the ability of high-cost lenders to arrange loans through banks at rates higher than the state laws allow.

  • Concern over this practice was high across the political spectrum with concern expressed by 71% of Democrats, 64% of Republicans, and 63% of independents.
  • Approximately one in three Republicans, independents and Democrats say they are “very concerned” about this practice.
  • Across all 50 states and the District of Columbia, a majority (60-69%) of the population is concerned about high-cost lenders evading state laws.

Seventy percent of voters support an annual interest rate cap of no more than 36% annual interest for consumer installment loans.

  • This proposal sees wide support across party lines with support at 72% among Democrats, 70% among Republicans, and 65% among independents.
  • Forty-one percent of registered voters “strongly support” a rate cap of no more than 36% for consumer installment loans.

Voters support a 36% interest rate cap for consumer installment loans, with a 60%-72% total support across all 50 states and the District of Columbia.

Rent-A-Bank Resources

Rent-A-Bank in the News

Rent-A-Bank Schemes and New Debt Trap, The St. Louis American, Charlene Crowell, 2/14/20 – But now, under a different administration, deregulation has swung the public policy pendulum in the other direction. A bold effort to benefit business and commerce focuses on growing customers, while taking the teeth out of consumer protection with the blessings of federal regulators.

Trump to Payday Lenders: Let’s Rip Off America Again, Mother Jones, Daniel Moattar, 2/11/20 – Donald Trump’s finance czars had another idea. In November, the Federal Deposit Insurance Corporation (along with the even more obscure Office of the Comptroller of the Currency) floated a permanent loophole for payday lenders that would essentially make the South Dakota law, and many others, moot—they could launder their loans through out-of-state banks, which aren’t subject to state caps on interest. Payday lenders arrange the loans, the banks issue them, and the payday lenders buy them back.

Dear Congress: Do away with the rent-a-bank ruse, American Banker, Paul Chessin, 2/10/20 – Although state consumer protection laws are good, they are subject to the constant gaming by lenders employing rent-a-bank and other schemes. Federal legislation would put an end to this, by offering financial protection covering all Americans.

Trump administration sides with predatory lenders. Again., Los Angeles Times, Editorial Board, 2/07/20 – Now, the administration is on to its next outrageous proposal. Two top federal bank regulators — the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency — want to allow lenders to evade state consumer protection laws in order to charge obscenely high interest rates. Proposed rules by the two agencies would bless “rent-a-bank” schemes in which high-cost lenders join forces with national or federally insured state banks to market and issue loans with interest rates far above state interest caps.

Rent-a-bank schemes trample voters’ and states’ rights, The Hill, Lauren Saunders, 2/08/18 – Payday lenders have tried for decades to use rent-a-bank arrangements to evade state laws against 300 percent APR loans. Two bills pending before Congress would bless these schemes. These bills would flout the will of voters and trample on states’ historic ability — back to the founding of our nation — to prevent predatory lending.