In the 1990s payday lenders partnered with banks to create a practice known as Rent-a-Bank. This practice exploits a provision of federal law that allows banks to export their interest rates across the country, ignoring state laws meant to protect borrowers from abusive high-rate lending that can lead to a debt trap. While predatory lenders originally used store-front payday locations when this evasion scheme began, today’s high-cost lenders have moved their tactics online under the glossy facade of fintech innovation. These lenders are now trying to adapt their abusive high-cost lending playbook to larger, longer-term personal loans.

In 2023, the state of Colorado addressed the reemergence of this scheme by passing legislation to opt out of the provision of federal law being exploited by predatory lenders and banks, allowing the state to fully enforce its own lending laws for Colorado consumers.

Rent-a-Bank arrangements allow online lenders to exceed state limits on loans used to finance the purchase of everything from puppies to car repairs, including expensive debt consolidation loans made to people already struggling to meet their monthly obligations. While some of the loans are typical triple-digit payday products, others are very large loans with a 36% annual percentage rate (APR) or higher. A 36% interest rate is appropriate for small, short-term loans. It is not appropriate for large loans paid over a period of years.