FDIC Should Downgrade Second Utah Bank Over Predatory ‘Rent-a-Bank’ Lending

March 15, 2023

Predatory Puppy Loans, Rates up to 160% APR, and High Default Rates Justify Lower Grade for Sandy-based FinWise Bank

WASHINGTON — Today, a coalition of consumer advocates submitted letters to the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions (DFI) in connection with the FDIC’s Community Reinvestment Act (CRA) examination of Sandy-based FinWise Bank. FinWise Bank’s lending through American First Finance, Elevate, and Opportunity Financial (OppFi), offering loans at up to 160% APR, raises serious consumer protection issues and fails to meet the convenience and needs of the communities it serves. 

Earlier this year, the FDIC downgraded the CRA rating of another Utah bank, Transportation Alliance Bank, over unfair or deceptive acts or practices by one of its partners, likely EasyPay Finance. The groups urged the FDIC to do the same to FinWise Bank.

The letter to Utah Commissioner Darryle Rude also urged DFI “to stop FinWise Bank from enabling such predatory loans and from allowing itself to be used by nonbank lenders to evade state consumer protection laws.”

“Hundreds of complaints revealing FinWise Bank’s predatory puppy loans, unaffordable lending and potential violations of the law strongly support downgrading the bank’s Community Reinvestment Act rating” said Lauren Saunders, associate director at the National Consumer Law Center. “FinWise Bank’s predatory credit that borrowers can’t afford to repay and that evades state interest rate laws does not meet the convenience and needs of communities as required by the CRA.”

FinWise Bank, chartered in Utah and supervised by the FDIC, is one of only a few rogue banks that front for predatory lenders. Most states have interest rate limits to stop predatory lending, but predatory lenders try to evade state laws by laundering their loans through banks, which are exempt from state rate caps. 

FinWise Bank’s partner American First Finance has a business model similar to that of TAB Bank’s partner EasyPay Finance, offering predatory puppy loans and other deceptive, high-cost loans through retail stores for pets, furniture, auto repairs and appliances. The advocates’ comments pointed out that American First Finance has twice as many complaints as EasyPay. One consumer complained, “I purchase a puppy .. and its was super cute but… American first finance if you read this YOU GUYS ARE SCAMMERS AND LIERS dont trust them guys!!!!!!” 

“The FDIC’s assessment of FinWise Bank must take into account the full scope of its business practices,” said Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending. “High-cost credit that extracts wealth and crushes borrowers with debt does not meet communities’ credit needs and must be penalized on CRA exams.”

Two of FinWise Bank’s other rent-a-bank lenders, Elevate and OppFi, have rates well over 50% for charge-offs, a measure of debts unlikely to be collected, illustrating high-rates of default and the predatory nature of their loans.

“Predatory payday and installment lenders are using harmful ‘rent-a-bark’ partnerships with FDIC banks, like FinWise, to make triple-digit interest rate loans to unsuspecting consumers. FinWise Bank must be stopped from fronting for these loans that are illegal across the country,” said Rachel Gittleman, financial services outreach manager at Consumer Federation of America.

The comments described how FinWise Bank partners American First Finance, Elevate, and OppFi have generated hundreds if not thousands of complaints to the Consumer Financial Protection Bureau (CFPB) and Better Business Bureau about: 

• Deception and unaffordable interest rates on loans that borrowers are unable to repay
• Consumers receiving loans that they never applied for and identity theft
• Improper debt collection tactics, including collecting debt not owed, failure to validate debts, harassment and abuse
• Credit reporting problems, including incorrect information and failure to respond to disputes and errors

Under FDIC Guidance, banks are responsible for risks that arise from third-party relationships to the same extent as if the activity were handled by the institution.

“The FDIC can protect consumers, especially low-wage earning working families, by down-grading FinWise Bank. FinWise Bank’s participation in rent-a-bank schemes erases efforts by states to protect residents from predatory lenders through modest interest rate caps,” said Kimberly Fountain, Consumer Financial Justice Organizer.

“The federal banking system was not developed to enable predatory lenders to evade the clear will of both the people and the legislature in a given state,” said Brent Adams, Senior Vice President of Woodstock Institute, a consumer advocacy group based in Illinois, which has a 36% cap on loans passed by an overwhelming majority of the legislature and supported by 86% of the State. “FinWise’s role in scheming with predatory lenders to skirt consumer protections is anathema to the CRA and should earn FinWise the lowest possible rating under the CRA.”

“The FDIC must hold FinWise Bank accountable for the impact its lending has on consumers,” said Adam Rust, Senior Policy Advisor of the National Community Reinvestment Coalition. “FinWise’s ‘charter-as-a-service’ model doesn’t meet the conveniences and needs of borrowers. It conveniently serves the needs of predatory lenders. That contradiction underscores why it’s incumbent on the FDIC to downgrade FinWise on its CRA exam.”  

The letter was signed by Accountable.US, Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Federation of America, National Community Reinvestment Coalition, NCLC (on behalf of our low-income clients), Public Citizen, U.S. PIRG, and Woodstock Institute.

Additional Resources

• TAB Bank, Facilitator of Predatory Puppy Loans, Gets Rating Downgraded by FDIC, Feb. 6, 2023
• In Evaluating TAB Bank, FDIC Should Consider Consumer Harm, Possible Legal Violations, from Predatory Lending, June 30, 2022
• Press Release, National Auto Repair Chains Must Stop Offering Predatory Loans Through EasyPay Finance and TAB Bank, May 18, 2022
• Report, Predatory Puppy Loans by TAB Bank and EasyPay Finance (Feb 1, 2022)
• NCLC’s High-Cost Rent-a-Bank Loan Watch List