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TAB Bank Treachery
Triple-digit interest rates, predatory practices, no FDIC action
There’s more news about how TAB Bank is a lender of choice for predatory nonbank lenders using “rent-a-bank” schemes to charge triple-digit interest rates.
Here’s how Inside Mortgage Finance describes the situation:
The groups claimed TAB insufficiently underwrites consumer loans for ability to repay, and that consumer complaints indicated TAB’s loans undermine consumers’ financial health and were deceptive. NCRC President and CEO Jesse Van Tol said CRA evaluations should take qualitative aspects of lending practices into account. “TAB Bank’s partnership with EasyPay is causing direct harm, and the FDIC should downgrade its CRA rating accordingly,” he said. TAB Bank has one physical branch but it makes loans for Carlsbad, CA-based nonbank EasyPay, which offers point-of-service customer financing options for retailers and auto repair shops. EasyPay loans are offered through staff at nonfinancial institutions. To adequately explain the loan product, employees have to comprehend the products well enough to do so, which is difficult to guarantee in retail contexts. The advocacy groups said the desire to increase sales volume and average transaction size creates conflicts of interest as well.
EasyPay has been known to charge interest rates up to 189% by using TAB’s Utah charter. This is a deliberate attempt to evade state rate caps on interest rates.
The FDIC has regulatory authority over TAB bank, but so far, has not taken action against the bank for its participation in usurious practices.
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MORE FINTECH FOUL PLAY
The fintech industry — nonbank and neobank entities offering services (like short-term loans) that are similar to bank offerings — is facing new scrutiny.
This according to the latest report in Fintech Business Weekly:
The CFPB has also recently upped its rhetoric on so-called “rent-a-bank” arrangements used by fintech lenders, particularly those using them to originate loans above states’ usury caps.
While the lending question is somewhat distinct from “banking-as-a-service,” the consumer regulator could see them similarly, particularly as fintechs like Dave (partnered with Evolve) and MoneyLion (partnered with MetaBank) offer short-term loans and as more BaaS platforms offer credit products.
I’ve written a lot about these “rent-a-bank” schemes and about fintech lenders like Dave and OppFi and their persistence in finding ways to evade state interest rate caps and charge triple-digit interest rates on short-term loans.