CFPB official concerned about high-cost consumer loan partnerships

The Consumer Financial Protection Bureau is reviewing high-cost lending partnerships between banks and some online consumer lenders, an agency official said Wednesday, calling the arrangements “bank leasing programs.”

The comments indicate that regulators in the Biden administration could take steps to limit partnerships, which offer credit to consumers who typically struggle to obtain traditional loans. Borrowers sometimes end up paying three-digit interest rates.

A Consumer Financial Protection Bureau official said in remarks Wednesday that the agency is sensitive to criticism from consumer advocates of partnerships that allow nonbanks to offer high-cost consumer loans.


Consumer advocates have long sought a regulatory crackdown on partnerships, saying digital lenders are essentially using bank charters to provide loans at interest rates they couldn’t charge themselves due to rate caps. interest of the state.
Comments from CFPB Deputy Director Zixta Martinez, who spoke to a group of consumer rights advocates at a conference, suggest the agency is taking a similar view.

“I want to assure you that the CFPB hears you, we share your concerns and we are looking into this issue more closely,” Martinez told a Consumer Federation of America conference in Washington, DC.

Much of the potential regulatory action on partnerships has revolved around the Federal Deposit Insurance Corp., which oversees a handful of community banks that partner with digital lenders. But Wednesday’s comments indicate that the CFPB is evaluating its own action on the matter.

“Any scrutiny of these outrageous bank leasing programs is welcome,” Lauren Saunders, who tracks partnerships as associate director of the National Consumer Law Center, said in an interview. High interest rates on loans “exploit vulnerable people and put them in a debt trap”, she added.

The companies making the loans disputed the criticisms, saying they were genuine partnerships between community banks and digital lenders. From a legal point of view, the partnership element is essential because banks have the ability to anticipate the interest rate ceilings of the States, while non-banks are subject to rate limits.

The Alliance of Online Lenders, whose members include high-cost lenders like Elevate, Enova, Axcess Financial and CURO Financial Technologies, said the partnerships help expand access to credit for consumers who are often excluded by traditional lenders.

Digital lenders help banks by providing expertise and analytics to reach new consumers, and loans are being scrutinized by federal banking regulators, the group wrote earlier this year in a letter to the FDIC board. The board is made up of Acting FDIC Chairman Martin Gruenberg, CFPB Director Rohit Chopra and Acting Comptroller of the Currency Michael Hsu.

“This ensures borrowers are protected, supervision is appropriate, and consumers can work with a federally supervised lender, giving them more confidence and security,” wrote Andrew Duke, executive director of the Alliance. online lenders and former CFPB official during Trump. administration.

Martinez, deputy director of the CFPB, said some lenders are “trying to use these relationships to evade state interest rate caps.” The comments indicated that the agency supports the view of consumer advocates that fintech companies are the “true lender” and therefore should be subject to state rate caps.

She also said some lenders had “unusually high default rates”, raising questions about whether companies are setting up “borrowers for failure”. The CFPB’s consumer complaints database also includes “significant consumer protection concerns” with some loans made through banking partnerships, Martinez added.

Fifteen consumer groups wrote to the FDIC in February calling for a crackdown, saying the agency “appears to have done nothing to curb the predatory lending that has exploded under its watch.” A few California lawmakers have made a similar request last month, saying FDIC-supervised banks were helping nonbanks evade the state’s 36% rate cap on certain consumer loans.

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