Consumers Score Wins Against Legalized Loan Sharks
Victories in Congress and in Hawaii
“This vote, along with the bipartisan vote in the Senate, illustrates the widespread disapproval of the harmful rent-a-bank model that is being used by predatory payday and installment lenders to make triple-digit interest rate loans that are illegal across the country,” said Rachel Gittleman, Financial Services Outreach Manager with Consumer Federation of America. “President Biden must sign this important resolution to protect consumers, especially small business owners, still reeling from the fallout of the COVID-19 pandemic.”
Predatory small business lenders are using the fake lender rule today to defend a 268% APR rate on loans totaling $67,000 to a restaurant owner in New York, where the criminal usury rate is 25%, secured by property in New Jersey, where the legal limit is 30%. OppLoans (aka OppFi), an online lender offering 160% APR loans in 26 states that prohibit triple-digit rate loans, cited the OCC’s fake lender rule in defense of its loan to a disabled veteran in California, where the legal rate on the loan is 24%. OppLoans is evading state rate cap laws supported by broad majorities of voters in Arizona, Montana, Nebraska, and South Dakota; and also laws approved by legislatures in Maine, Ohio, and other states.
Regulators Should Take Closer Look
“Congress’s vote to repeal the OCC fake lender rule is critical because predatory rent-a-bank schemes are destroying small businesses, homes, and lives,” said National Consumer Law Center Associate Director Lauren Saunders. “We urge President Biden to swiftly sign the resolution.”
But Saunders warned that more action was needed to stop predatory rent-a-bank lenders from evading state interest rate laws. “The OCC and especially the FDIC must crack down on the banks that are helping predatory lenders evade state laws so that they can charge rates up to 200% APR. Congress also must pass a national 36% interest rate limit that covers all lenders, including banks, so that rent-a-bank schemes cannot be used by high-cost lenders to evade state laws.”
Photo by Dmitry Demidko on Unsplash
Taking a Bite Out of Loan Shark Lenders in the Aloha State
Before the reform, borrowers in Hawaii were subject to loans with extreme prices and unaffordable payments: Payday loans in the Aloha State had typical annual percentage rates of 460% and came due in one lump sum on the borrower’s next payday, consuming more than a third of the average borrower’s paycheck. These unaffordable payments resulted in consumers repeatedly using loans, often paying more in fees than they originally borrowed. For instance, a $500 loan repaid over four months could end up costing a consumer $700 in fees, for a total of $1,200.
Gabe Kravitz, an officer with Pew’s consumer finance project, issued the following statement:
“The passage of H.B. 1192 will save Hawaiians millions of dollars each year, all while enabling access to affordable credit from licensed lenders.
“The Legislature, the commissioner of financial institutions, and the governor took great care to balance the needs of borrowers and responsible lenders and, in doing so, delivered a major win for consumers, who no longer will be exposed to dangerous balloon-payment payday loans.
“Hawaii now joins Virginia, Ohio, and Colorado in demonstrating that state laws can be responsive to the needs of borrowers who want more time to repay, affordable payments, and fair prices.”