April 29, 2021

Lawmakers weigh options to address harmful rent-a-bank practices

Capitol HillDuring Wednesday's Senate Banking Committee hearing on rent-a-bank schemes, lawmakers discussed ways to prevent predatory lending practices and ensure low-income, underserved communities have access to safe, affordable financial services.

Ahead of the hearing, NAFCU wrote to the committee to flag concerns about companies taking advantage of regulatory loopholes and chartering schemes to expand their reach in the U.S. financial system, potentially creating risks for consumers and the financial system.

At the core of lawmakers' discussion is the Office of the Comptroller of the Currency's (OCC) true lender rule, which allows banks and federal savings and loan companies to provide their charter to online lenders so they can deliver high-cost loans with annual rates over 100 percent, evading state consumer protections and usury caps and promoting predatory payday lending. 

NAFCU raised several issues with this rule, noting that "payday lenders are operating on an uneven playing field, relying upon the benefits of the OCC’s federal preemption to circumvent consumer protections and place borrowers in harms’ way."

Lawmakers shared the association's concerns that rent-a-bank schemes pose financial harm to borrowers. Committee Democrats expressed support for S.J. Res. 15, which would use the Congressional Review Act to nullify the true lender rule. NAFCU also offered its support for this joint resolution in its letter to the committee.

However, Republicans on the committee indicated that overturning the true lender rule would limit other bank partnerships, like those emerging with fintechs, and could limit access to credit for borrowers in need. NAFCU has consistently advocated for lawmakers to reform the Federal Credit Union Act and allow all credit unions to add underserved areas to their fields of membership to provide safe, affordable financial services to vulnerable consumers and communities that have been left behind by other financial institutions.

In addition, NAFCU is leading efforts to alert policymakers and consumers to the growing issue of financial technology companies applying to become a bank or acquiring a bank, allowing fintech companies to evade proper oversight in the financial system.

NAFCU will continue to advocate for effective financial regulation that provides a level playing field for credit unions and proper consumer protections.