Message to FDIC's new leaders: Crack down on 'rent a bank' loans

Consumers advocates are asking new leaders at the Federal Deposit Insurance Corp. to cut off partnerships between banks and fintechs that result in borrowers paying annual interest rates as high as 225%.

Fifteen consumer groups called for the crackdown in a letter to Democratic appointees on the FDIC board, as Chair Jelena McWilliams, a Republican appointee, prepared to step down Friday.

The FDIC “appears to have done nothing to curtail the predatory lending that has exploded on its watch,” wrote the National Consumer Law Center and other groups.

Bloomberg News

The consumer groups argued that fintechs are evading state rate caps by partnering with a handful of FDIC-supervised banks, which have the ability to export their home-state rules on interest rates. The FDIC should ensure that the banks end the partnership programs and discontinue their “abusive lending practices,” the groups wrote.

“These rent-a-bank schemes often operate under the guise of innovative ‘fintech’ products, even as their high-cost, high-default business model inflicts harms similar to those inflicted by traditional payday lenders,” the groups wrote.

The Online Lenders Alliance, which represents a few of the nonbank companies identified by the consumer groups, has said that its members provide a vital source of credit for consumers whose credit history often makes them ineligible for loans at traditional banks.

The group has fought efforts in Congress to cap annual interest rates at 36%, saying in a November press release that such a law would “restrict credit access and eliminate critical financial options for hardworking Americans.”

For her part, McWilliams has pushed back on criticism of the FDIC’s oversight of the partnerships. At a 2019 congressional hearing, she said that the agency would not “allow banks to evade the law.”

The consumer groups addressed the letter to the FDIC's three Democratic board members: Martin Gruenberg, who is expected to become the agency’s acting chairman when McWilliams steps down; Consumer Financial Protection Bureau Director Rohit Chopra; and acting Comptroller of the Currency Michael Hsu. Once McWilliams resigns, the agency will not have any Republican board members.

Co-signers of the letter included the National Community Reinvestment Coalition, the Center for Responsible Lending, the Consumer Federation of America, the NAACP and the Latino civil rights group UnidosUS.