April 28, 2021

NAFCU raises rent-a-bank, fintech chartering concerns

Capitol domeNAFCU Vice President of Legislative Affairs Brad Thaler reiterated the association's concerns about companies taking advantage of regulatory loopholes and chartering schemes to expand their reach in the U.S. financial system ahead of today's Senate Banking Committee hearing on rent-a-banks. Thaler urged lawmakers to consider the risks these trends pose to consumers and the financial system.

Thaler cited the Office of the Comptroller of the Currency's (OCC) true lender rule as contributing to the reemergence of rent-a-bank schemes, 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. Several states have filed suit against the OCC to try to overturn the rule.

"These predatory 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," Thaler wrote. "What is most concerning is the lasting damage this form of wealth extraction has on household financial security and on communities. Given the damage caused by these high-cost, unaffordable loans to borrowers’ balance sheets, it limits the ability for legitimate and responsible lenders to support those households and communities with productive credit."

Thaler highlighted credit unions' efforts to provide members with safe, affordable short-term, small-dollar loans and called on Congress to ensure vulnerable consumers – that are often the target of predatory lending – have access to safe products by allowing all credit unions to add underserved areas to their fields of membership.

"At a time when low-income consumers can least afford it, the OCC’s rule is enabling high-cost lenders to prey on consumers that are on even more precarious financial footing, which could threaten COVID-19 economic recovery efforts and the good work of consumer-friendly financial institutions like credit unions," Thaler said, urging lawmakers to support the Senate resolution under consideration to overturn the true lender rule and stop this harmful practice.

In line with rent-a-bank concerns, Thaler raised NAFCU's concerns about fintech companies taking advantage of chartering options and loopholes to evade proper oversight in the financial system. 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, and Thaler detailed risks posed by Industrial Loan Companies (ILCs), special purpose fintech charters, payments charters, and national trust banks.

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