- A coalition of 15 consumer groups wrote a letter Friday at the Federal Deposit Insurance Corp. (FDIC), urging the agency to crack down on partnerships between fintechs and banks that allow excessive interest rates.
- The letter came the day the Trump-appointed regulator chairman, Jelena McWilliams, resigned and Democrat Martin Gruenberg took over on an interim basis.
- Gruenberg on Monday Finished a set of priorities for the agency to focus throughout 2022.
Overview of the dive:
fintech Lenders circumvent interest rate caps by partnering with FDIC-supervised banks established in states with relatively lax cap rules, overwhelming borrowers with annual percentage rates of up to 225%, wrote Friday. consumer advocacy groups.
“The FDIC appears to have done nothing to curb the predatory lending that has exploded under its watch,” organizations including the National Community Reinvestment Coalition (NCRC), NAACP, and Center for Responsible Lending wrote.
The groups expressed hope that would change with a Democrat leading the agency.
Unlike the FDIC, the Office of the Comptroller of the Currency (OCC) acted to stop two banks from offering high-cost installment loans even before Congress canceled the agency’s Trump era. “true lender” rule, which protected “rent-a-bank” partnerships, the groups said. The letter was also addressed to Michael Hsu, acting president of the OCC and member of the board of directors of the FDIC.
“Bank lease programs have flourished at FDIC banks over the past few years and it’s time for that to end,” the groups wrote, noting that 42 states and Washington, D.C., have caps below 100% for an installment loan of $2,000 over two years. “The FDIC has the tools it needs to prevent its banks from dealing with predatory lenders who circumvent state law and provide extremely expensive installment loans.”
The letter named six “rogue banks” for non-bank consumer lenders: Kentucky-chartered Republic Bank, Missouri-chartered Lead Bank, and four Utah-chartered banks: FinWise Bank, Capital Community Bank, First Electronic Bank and Transportation Alliance Bank.
“For all the loans we provide, we ensure compliance with the law, provide transparent rates and pay close attention to the activities of our service providers and any complaints we receive regarding our business activities or the loan products we we offer”, replied First Electronic Bank in a statement to Bloomberg.
While consumer groups are urging the FDIC to act, at least one banking trade group is seeking the opposite. The Consumer Bankers Association (CBA) is ask the agency to delay the adoption of new rules or regulations “until a board member representing the views of the minority party is elected”.
The regulator’s acting chairman, meanwhile, has listed five priorities for the coming year: the Community Reinvestment Act; climate change; the Bank Mergers Act; crypto-assets; and the Basel III capital rule.
Gruenberg stressed that reforming the ARC was the agency’s top priority. The OCC issued a final rule in 2020 to revamp the 1977 law that thwarts redlining, but it did so without Fed or FDIC support. When Hsu took over as head of the OCC, the agency rolled back that rule, months after committing to issue joint guidance alongside the Fed and FDIC.
Gruenberg also pushed for a “careful interagency review of the bank merger process” — a prospect that exposed a split within the FDIC that precipitated the resignation of his predecessor, Jelena McWilliams.
The FDIC will also seek public comment on guidance designed to help banks manage climate change risks and will establish a task force for that purpose, Gruenberg said. He also committed the agency to joining the Network for Greening the Financial System.
Additionally, Gruenberg pledged to implement the Basel Committee-recommended capital rule overhaul and advised regulators “to provide robust guidance … on managing” the risks associated with crypto assets.
“All of these priorities will require close collaboration among federal banking agencies,” Gruenberg said in a statement on Monday, reinforcing that banking supervision “encompasses safety and soundness and consumer protection, both of which are central to this important mission.”