Consumer Advocates Urge Regulators to End Predatory Bank-Fintech Partnerships

October 31, 2024 — Press Release

WASHINGTON — The Center for Responsible Lending (CRL), National Consumer Law Center (NCLC), and the Student Borrower Protection Center (SBPC) submitted comments urging bank regulators to end bank-fintech partnerships that engage in predatory lending, evade the law, and pose a high risk of unfair, deceptive, or abusive practices and violations of consumer protection laws.

“Banks should not be in the business of helping fintechs evade consumer protection laws or make 200% APR loans that almost every state prohibits,” said Lauren Saunders, associate director of the National Consumer Law Center.

Some banks help fintechs to evade state usury laws limiting the interest rate they can charge on loans, facilitating high-cost loans to their borrowers under the guise of bank-issued products. This type of arrangement is called a rent-a-bank scheme. Other banks are helping cash advance apps conceal fintech payday loans as overdrafts on fake bank accounts, or make income share agreements that pose risks of deceptive practices and usurious lending. The comment letter highlights these issues and related areas of risk, including:

• High-cost lending facilitated by partner banks;
• Nonbank fintech evasion of consumer protection laws, especially usury laws, by exploiting the partner banks’ charters; and
• Fintech loans that claim not to be loans or otherwise to be outside of consumer protection law, including payday advance apps and income share agreements.

“Just as regulators stopped payday loan rent-a-bank schemes in the early 2000s, they must now act to stop predatory lenders from laundering their loans through banks to evade the law and facilitate destructive lending,” the comment letter stated.

“Banks should not assist fintechs in evading the law or in offering products that harm consumers,” said Nadine Chabrier, senior policy counsel at the Center for Responsible Lending. “High-cost loans and deceptive products in bank-fintech partnerships present serious safety and soundness risks. These schemes undermine legal safeguards meant to protect consumers, especially those in vulnerable communities who are easily trapped in cycles of debt. We urge bank regulators to crack down on predatory bank-fintech partnerships and hold banks accountable for the actions of their service providers, including examining third parties engaging in high-cost, predatory lending.”

“Financial regulators must scrutinize the fintech partnerships into which their banks enter,” said Winston Berkman-Breen, legal director at the Student Borrower Protection Center. “Too often predatory companies hide behind the name brand of their banking partner to evade direct supervision by government agencies. We see this across the board, including for products like income-share agreements, that misrepresent their very classification as a student loan. This exposes consumers to abusive conduct and banks to risky and unlawful lending practices, which they may not even appreciate their partners have engaged in. We applaud the Office of the Comptroller of the Currency, the Federal Reserve System, and the Federal Deposit Insurance Corporation for inviting these comments and urge them to take steps to end dangerous bank-fintech partnerships.”

To learn more about bank-fintech partnerships engaged in lending, view the comments. The National Consumer Law Center also submitted a separate comment letter on the risks of bank-fintech partnerships that offer payments and deposit accounts.