Portland, OR — Today, the Oregon Senate passed House Bill 4116, which stops online lenders from exploiting a loophole in federal law to charge consumer loan interest rates above Oregon's 36% cap through “rent-a-bank” schemes. The bill now moves to Governor Tina Kotek's desk to be signed into law.

“Predatory ‘rent-a-bank’ loans have high rates of interest, defaults, and repeat borrowing. The business model of these lenders is built on saddling borrowers with debt for as long as possible, creating prolonged financial distress,” said Ellen Harnick, Director of State Policy at the Center for Responsible Lending. “We commend Oregon lawmakers for reinforcing their ability to protect Oregonians from these financial predators.”

Once enacted, the law opts Oregon out of Section 521 of the Federal Depository Institutions Deregulation and Monetary Control Act (DIDMCA), which has facilitated "rent-a-bank" schemes. Online lenders partner with banks in states with high or nonexistent rate caps, such as Utah, to make loans to consumers in other states at rates that exceed those states' legal caps. This could mean an Oregonian who takes out a $1,700 loan at a 159% interest rate ends up paying 1.5 times the amount of the initial loan, just in interest.

The Center for Responsible Lending recently published a report on one of these lenders, “Lost Opportunities: How OppFi Traps Borrowers in Unaffordable Debt.”

"Almost 20 years ago, Oregon declared that the maximum interest rate a lender can charge a consumer is 36%," said Representative Nathan Sosa, the chief sponsor of HB 4116. "While the majority of Oregon's licensed lenders adhere to this law, a handful of out-of-state online lenders use a federal loophole to charge triple-digit interest rates. Since 2020, they've issued 31,000 high-interest loans, extracting over $61 million from working families. This bill puts a stop to these predatory loans."

"Oregonians deserve fair and transparent lending practices that are free from exploitative tactics,” said Oregon Consumer Justice State Policy Director Angela Donley. “Access to credit should support a consumer when they have a financial need, not trap them in cycles of unmanageable debt."

With the passage of HB 4116, Oregon joins Colorado, Iowa, and Puerto Rico in exercising the right to opt out of the DIDMCA provisions. This strengthens Oregon's ability to enforce its own interest rate cap and to safeguard consumers from unscrupulous lending practices.

 

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Press Contact: Matthew Kravitz matthew.kravitz@responsiblelending.org

Oregon Consumer Justice (OCJ) is expanding and protecting consumer rights by advancing a justice movement that puts people first through policy, community engagement, and the law. Learn more at ocj.org.

The Center for Responsible Lending is a non-partisan, nonprofit research and policy advocacy organization working to promote financial fairness and economic opportunity for all, end predatory lending, and close racial wealth gaps.