North Carolina has strong consumer lending protections that limit the interest and fees lenders may charge consumers. Yet high-cost lenders employ myriad tactics to evade those protections, often using “Rent-a-Bank” arrangements to circumvent the state’s longstanding limits. These arrangements allow nonbank lenders to “rent” a bank’s charter to originate loans that the fintech company markets, services, and collects on, making these loans difficult to identify through traditional regulatory data.
The Center for Responsible Lending analyzed 7,274 personal bankruptcy filings in North Carolina between 2018 and 2023. The analysis found:
- Rent-a-Bank lenders were listed as creditors in nearly 15% of bankruptcy filings. Of the 7,274 filings reviewed, 1,055—or 14.5%, roughly one in seven—listed one or more Rent-a-Bank lenders as creditors.
- Many loans exceeded North Carolina’s interest-rate limits. CRL reviewed 123 claims from eight lenders. Among 58 claims with visible APR disclosures, rates ranged from 14% to 388%, and at least 44 exceeded the 33% cap applicable to the loans reviewed.
- Even loans advertised below 33% APR could violate North Carolina law. Nearly all of the Avant contracts CRL reviewed exceeded the rates permitted under the state’s tiered system of maximum finance charges.
- A $600 loan at 388% APR resulted in a claim of nearly twice the amount borrowed. A Creedmoor borrower took out an Enova/CashNet USA loan, resulting in a $1,367 claim in bankruptcy, compared with $712.57 if the loan had complied with North Carolina law.
- Rent-a-Bank borrowers carried substantial debt burdens. Nearly three-quarters (74%) reported annual incomes below $60,000, while average assets were $115,140 and average liabilities were $172,000. More than half of their average liabilities were unsecured, including personal loans, credit cards, and other debts.
At a time when many North Carolina families are struggling to meet basic expenses, loans carrying excessive interest rates and fees can deepen financial hardship rather than provide access to affordable credit.
North Carolina should ensure that its consumer lending laws apply to fintech lenders operating in the state, regardless of how those lenders structure their relationships with banks. State and federal regulators should strengthen oversight of bank-fintech partnerships and take action to prevent these arrangements from being used to evade state consumer protections.