A coalition of advocacy groups wants U.S. regulators to look more into banks partnering with FinTechs to charge predatory interest rates that would be otherwise illegal in the lenders’ home states, Bloomberg reported Friday (Feb. 4).
In a letter, the National Community Reinvestment Coalition, the NAACP and several other groups said that the Federal Deposit Insurance Corp. (FDIC) and other agencies should crack down on banks doing “high-cost predatory lending” in their work with financial technology firms.
The letter comes after Congress moved last year to overturn the Office of the Comptroller of the Currency’s (OCC’s) “true lender” rule from the Trump era, which made it simpler for banks to partner with FinTechs without breaking state interest-rate limits.
By signing that bill, President Joe Biden said it would be easier to protect borrowers against predatory lenders who’d found ways around rules and trapped people in cycles of debt.
The FDIC hasn’t done the same — instead, as the coalition posits, the FDIC isn’t doing much to curb predatory lending, which has surged in recent months, letting banks use their charters to allow these practices.
“Rent-a-bank schemes have flourished at FDIC banks in the past few years and it is time for that to come to an end,” the coalition said in the letter to the heads of the FDIC, the OCC and the Consumer Financial Protection Bureau (CFPB).
“The FDIC has the tools that it needs to prevent its banks from fronting for predatory lenders that are evading state law and making grossly high-cost installment loans and lines of credit,” the letter continues, with annual percentage rates as high as 225%.
In 2020, PYMNTS wrote that predatory lending was an issue for gig workers. Gig work, including deliveries for companies like Uber and others, added tons of jobs in the past several years, and with that comes a need for gig workers to have security from predatory payday lenders.
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