Urges FDIC not to allow payday lenders to bypass state laws through “rent-a-bank” schemes
Harrisburg, PA - A bipartisan coalition of 16 state treasurers, submitted a letter in opposition to a pending Federal Deposit Insurance Corporation (FDIC) proposal. The FDIC proposal would directly harm consumers by renewing payday, car title and other high-cost lenders’ ability to bypass state laws through so-called “rent-a-bank” schemes.
"This proposal by the FDIC is a direct departure from protections put in place at the state level and previous federal guidelines to keep consumers from entering an inescapable revolving door of debt. These high-cost lenders work the system for their own benefit, with no regard for the well-being of borrowers. As treasurers, we oversee the fiscal well-being of our states, which is dependent on the financial health of every one of our constituents. As American families struggle to make ends meet, allowing predatory lending to expand will add to the financial burden of our most vulnerable."
Pennsylvania Treasurer, Joe Torsella
The current proposal by the FDIC would undermine state laws that protect consumers from high-cost lenders by creating a dangerous loophole that will allow interest rates to far exceed state rate caps. If approved, the proposal would give high-cost lenders the ability to charge otherwise illegal and limitless rates—as long as they first purchase the loans from a state or federally chartered bank, a practice known as “rent-a-bank.” Analysis of “rent-a-bank” schemes has revealed APR rates as high as 780%.
George W. Bush-era federal financial regulations stopped lenders from operating “rent-a-bank” schemes to evade state laws. Since these regulations in 2005, predatory lenders and their allies have made multiple failed attempts to turn back state prohibitions in Pennsylvania and many other states. These efforts have been opposed by a diverse coalition including veterans, religious, and financial service advocates. The FDIC’s proposed change would undermine both state regulatory prohibitions and federal-level rules designed to protect the financial interest of consumers.
State treasurers are tasked with protecting the financial interest of residents and establishing ways to enhance economic opportunities. This proposal would have a negative impact on state economies. Allowing high-cost lenders to circumvent state laws would lead some of America’s most vulnerable families into an endless cycle of crushing debt. Studies have found that high-cost lending drives borrowers deeper into debt leading to a host of negative consequences such as overdraft fees, bank account closure, bankruptcy, default on other debts, delayed medical care and ultimately increased burdens on social services.
The current proposal by the FDIC would give predatory lenders renewed power to charge exorbitant interest rates by bypassing state regulated interest rate caps. These lenders would include high-cost installment lenders, fintech companies and car title lenders.