FDIC Accused of Waging Stealth Crackdown on Online Lenders

September 23, 2013
American Banker 
payday lending news

The Federal Deposit Insurance Corp. has been ramping up reviews of banks' third-party relationships just as some online lenders, which rely on banks to process their transactions, are facing serious questions about their exorbitant interest rates and their liability under state licensing laws. But online lenders and some GOP legislators say the FDIC has overstepped its bounds, alleging that the enforcement agency has forced banks to sever ties with a number of firms that offer short-term loans to distressed consumers.

The downside of this regulation, one industry group argues, is that some storefront and online lenders that are following all relevant laws are suddenly unable to meet loan demand. "It is a very uncertain legal environment," acknowledges University of New Mexico law school professor Nathalie Martin. "A federal usury cap would clarify everything."

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