Bank loans

Message to New FDIC Leaders: Crack Down on “Lease a Bank” Loans

Consumer advocates are calling on new executives at the Federal Deposit Insurance Corp. to end partnerships between banks and fintechs that force borrowers to pay annual interest rates of up to 225%.

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

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

The FDIC came under fire during outgoing President Jelena McWilliams’ tenure for its oversight of banking partnerships under which consumers paid triple-digit interest rates.

Bloomberg News

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

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

The Alliance of Online Lenders, which represents some of the non-banking companies identified by consumer groups, said its members are a vital source of credit for consumers whose credit history often makes them ineligible for loans in traditional banks.

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

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

Consumer groups addressed the letter to the three Democratic FDIC board members: Martin Gruenberg, who is expected to become the agency’s acting chairman when McWilliams steps down; Rohit Chopra, director of the Consumer Financial Protection Bureau; and Acting Comptroller of the Currency Michael Hsu. Once McWilliams steps down, the agency will no longer have Republican members on the board.

The letter’s co-signers included the National Community Reinvestment Coalition, the Center for Responsible Lending, the Consumer Federation of America, the NAACP and the Latin American civil rights group UnidosUS.