California lawmakers are asking the Federal Deposit Insurance Corp. to rein in partnerships between FDIC-supervised banks and consumer lenders they say are evading the state’s interest rate limits.
The agency should “crack down on these schemes” to ensure lenders cannot dodge California’s 36% annual percentage rate cap on loans between $2,500 and $10,000, four Democratic legislators wrote in a letter to FDIC board members. The lawmakers were the authors of a 2019 state law that banned such loans.
“FDIC-supervised depository institutions should not be permitted to originate loans on behalf of third parties who seek to evade state laws that protect consumers from unaffordable interest rates,” the legislators said in the letter, which was sent last week.
The letter mirrors a
The FDIC declined to comment Monday on the letter.
Under the partnerships, nonbank lenders use FDIC-supervised banks to make high-cost loans in California, since banks are not bound by the 2019 law's limitations. Critics of the partnerships call them “rent-a-bank” schemes. They also argue that APRs on the loans, which can stretch above 100%, are abusive.
But the companies that participate in the partnerships dispute their critics’ characterizations and say that higher interest rates are necessary to serve a riskier population that typically doesn’t qualify for bank loans.
The Online Lenders Alliance, which represents certain high-cost lenders, has
The debate is
Meanwhile, California banking commissioner Clothilde Hewlett is
The state lawmakers who wrote the letter to the FDIC noted the lawsuit is in its early stages and said that quicker action is necessary, since the legal issues are likely to take years to resolve.