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FDIC Action Shows Need to Prevent Flood of High-Cost Bank Loans

Thursday, November 15, 2018
Rebecca Borné

Broad Coalition has Urged Agency to Maintain Guidance That Guards Against Unaffordable Loans By Banks

WASHINGTON, D.C. – The Federal Deposit Insurance Corporation (FDIC) yesterday issued a Request for Information (RFI) on small-dollar lending by banks. Existing FDIC policies have kept predatory lending by FDIC-supervised banks largely at bay, and they should not be weakened. Civil rights, faith, and consumer groups have forcefully urged the FDIC to not allow banks to make loans that exceed 36% interest.

The RFI also asks about bank partnerships, which have been used to facilitate rent-a-bank schemes that avoid state interest rate caps.

Center for Responsible Lending’s Senior Policy Counsel Rebecca Borné issued the following statement:

The FDIC has a responsibility to make sure banks abide by basic rules of the road. The agency can ensure banks follow the rules by maintaining its existing critical guidances against predatory high-cost bank loans. Existing 2013 guidance addresses unaffordable bank payday loans, and 2006 guidance advises that banks charge no more than 36% interest on installment loans.

History shows clearly that unaffordable, high-cost bank loans have harmed consumers, risked the banks’ safety and soundness, and hurt the banks’ reputations. Whether a balloon payment or an installment loan, an unaffordable loan approaching 100% interest will harm, rather than help, bank customers — while eroding protections against usurious interest rates across the country.

The FDIC should also address and prevent the proliferation of rent-a-bank schemes, partnerships with nonbank lenders that facilitate avoidance of state interest rate caps. These caps are essential to preventing borrowers from falling into debt traps.

Background

For years, several major banks made high-interest payday loans that trapped borrowers in a vicious cycle of debt. In 2013, the Office of the Comptroller of the Currency (OCC) and FDIC took actions that prevented banks in their jurisdiction from making these types of predatory loans. Prior to that, in 2006, the FDIC, for the banks under its jurisdiction, issued guidance that advised an interest rate cap of 36% APR.

In 2017, the OCC rescinded its bank payday loan guidance. In May of this year, it issued an installment loan bulletin, which led to U.S. Bank introducing a 71% APR loan product that can be for as much as $1,000.

Yesterday’s RFI follows these recent concerning developments, as well as the July Treasury Report that encourages the FDIC to take actions similar to what the OCC did.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Matthew Kravitz at matthew.kravitz@responsiblelending.org or 202-349-1859.