In what may be a shot across the bow for banks partnering with fintechs that make high-cost consumer loans, the Federal Deposit Insurance Corp. has lowered Transportation Alliance Bank's Community Reinvestment Act rating from "satisfactory" to "needs to improve," based on the behavior of one of its fintech lending partners.
The FDIC did not say which TAB Bank partner was at fault nor what the improper behavior was, other than that it was an "illegal credit practice" that violated Section 5 of the Federal Trade Commission Act, Unfair or Deceptive Acts or Practices. The violation affected a large number of consumers over an extended period of time, according to the FDIC, which declined a request for an interview.
"TAB Bank has a significant history of receiving outstanding CRA ratings from the FDIC over the life of the bank," a spokesman for the bank said. "TAB Bank is working with the FDIC and has committed to do everything necessary to return its CRA rating to outstanding."
Other banks with fintech partners that make high-cost consumer loans could be next.
"It is black-letter regulatory policy that a bank like TAB is ultimately responsible for the actions of its fintech partners, but oversight and enforcement in this area was spotty," said Todd Baker, a senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University and the managing principal of Broadmoor Consulting. "We can expect more regulatory actions in the future as partner banking arrangements are increasingly a focus of examiners."
It's unusual for a violation of this type to affect a CRA rating decision, Baker said.
"But in some ways a CRA downgrade is a tougher penalty for TAB to deal with than a fine or consent order," he said.
One of TAB Bank's partners, EasyPay Finance in Carlsbad, California, has been in the crosshairs of consumer and animal activist groups for a year. The company makes so-called puppy loans, auto loans and other consumer loans at high interest rates. EasyPay did not respond to a request for an interview.
Last March, the Humane Society and other animal groups publicized TAB's practice of
In June, consumer advocacy groups, including the National Consumer Federation and the National Consumer Law Center, flooded the FDIC with comments and petitions for TAB Bank's CRA rating to be lowered because it was helping EasyPay Finance charge up to 189% on loans offered through stores, including auto shops, furniture stores and pet stores in states that have interest rate caps.
In December, the state of Iowa and the Iowa Division of Banking settled claims with TAB Bank that the bank charged usurious interest rates on 1,611 loans to Iowa consumers between 2020 and 2022, far exceeding the state's 21% interest rate cap. These loans were all made through its partnership with EasyPay. Iowa regulators forced the bank to provide restitution to Iowa consumers to compensate for interest they paid above the applicable 21% APR cap.
Consumer advocates applauded the FDIC's recent CRA downgrade of TAB Bank, which has $1.2 billion of assets and is based in Ogden, Utah.
"TAB Bank has been disserving the community through its predatory rent-a-bank loans and deserves this downgrade," Lauren Saunders, associate director of the National Consumer Law Center, said in a statement. "No bank should help predatory lenders evade state interest rate laws and make destructive loans that put people in a debt trap."
Nadine Chabrier, senior policy counsel at the Center for Responsible Lending, said she hopes this is the beginning of further regulatory actions against banks and their fintech partners that are enabling overly expensive loans to consumers.
"We urge the FDIC to take additional steps to stop all banks it regulates from harming consumers through rent-a-bank schemes," she said.
