S. 1642 & H.R. 3299 enable out-of-state lenders to use "rent-a-bank" scheme to preempt state interest rate caps
WASHINGTON, D.C. – Today, the Center for Responsible Lending (CRL), the National Consumer Law Center (NCLC), and more than 150 national and state organizations sent a letter urging Members of Congress to reject S. 1642 and H.R. 3299, the Protecting Consumers’ Access to Credit Act of 2017, (PDF) a bill that poses serious risks of enabling a vast expansion of predatory lending across the country. Specifically, the legislation makes it easier for payday lenders and other nonbanks to use rent-a bank arrangements to ignore state interest rate caps and make high-rate loans.
The groups wrote that the legislation would “open the floodgates to a wide range of predatory actors to make loans at 300% annual interest or higher."
The potential costs and damage to consumers are significant, the groups warn. S. 1642 and H.R. 3299 could potentially expand short-term payday lending to the 15 states plus the District of Colombia whose state interest rate limits currently save borrowers over $2.2 billion annually in payday loan fees. In addition, it could expand high-cost longer-term loans, the groups note. In about 34 states, a $2,000, 2-year installment nonbank loan exceeding 36% APR is illegal. But this legislation could effectively allow high-cost lenders to partner with banks to ignore rate caps across the country.
The legislation would override the Second Circuit’s Madden v. Midland decision, which held that a debt buyer purchasing debts originated by a national bank could not benefit from the National Bank Act’s preemption of state interest rate caps. The letter points out that the Madden decision did not limit the interest rates that banks may charge on credit cards and other forms of credit, but does limit nonbanks from evading state interest rate caps. Reversing the Second Circuit’s decision, as these proposals seek to do, would make it easier for payday lenders, online lenders, debt buyers, fintech companies, and other companies to use “rent-a-bank” arrangements to charge high rates on loans.
Across the country, state attorneys general regularly challenge and stop lenders that violate state laws. Twenty state attorneys general opposed another bill that would have overturned he Madden decision, warning that the bill would restrict states’ abilities to enforce their interest rate caps.
Download a copy of the letter (PDF) with a complete list of supporting organizations that are against S. 1642 and H.R. 3299.