UTAH (ABC4) – With the Federal Deposit Insurance Corporation (FDIC) under new leadership and following a resignation from the company’s chairmanship on Friday, proponents are calling on the FDIC to block certain Utah banks from “standing up for predatory lenders.”
The four banks in Utah are FinWise Bank, Capital Community Bank, First Electronic Bank and Transportation Alliance Bank. The proponents’ letter also cites Republic Bank & Trust of Kentucky and Lead Bank of Missouri. Each of the six banking schemes is presented in the letter.
The coalition of consumer and civil rights organizations is calling on the FDIC to “no longer allow its regulated entities to advocate for predatory lenders that circumvent state interest rate limits.”
The interest rates these organizations are putting an end to can enable loans as high as 225% APR, according to a press release.
The groups call these “rent-a-bank” programs and claim they exploit financially vulnerable families.
The letter, addressed to the FDIC board of directors, calls for a crackdown on “six rogue banks,” including the four in Utah.
According to the letter, these banks “advocate high-priced non-bank consumer lenders and facilitate loans at up to 225% APR that it is illegal for non-bank lenders to lend directly. In a rent-a-bank scheme, a non-bank company runs a lending program and takes most of the profit that a bank nominally approves and funds by putting its name on the loans. This arrangement helps the true lender (the non-bank entity) circumvent government interest rate caps that banks do not.”
Proponents say in the letter that “these rent-a-bank programs often operate under the guise of innovative ‘fintech’ products, even when their expensive business model with high default rates causes similar damage to traditional payday lenders.”
Proponents also cite President Joe Biden’s pledge that he would no longer ratify the plans to a bipartisan vote in Congress that disapproves them, broad bipartisan opposition to bypassing the state interest rate, recent action by the Office of the Comptroller of the Currency to a bank to stop lending and numerous reasons why the FDIC, as banking regulator, has the responsibility to stop these illegal operations.
“Two decades ago, the FDIC, along with the other banking regulators, used its supervisory and enforcement powers to prevent banks from helping short-term payday lenders evade the law,” the letter explains. “It is now time for the FDIC to put an end to modern predatory rent-a-bank schemes that involve longer-term loans that represent an even bigger, deeper debt trap.”
The letter also states that these triple-digit installment loans are illegal in almost every state — Utah has no interest rate cap.