FDIC Should Downgrade Three Banks Engaged in Predatory “Rent-a-Bank” Lending

March 30, 2023 — Press Release

Utah’s Capital Community and First Electronic Banks and Kentucky’s Republic Bank & Trust accused of predatory lending, evasions of state interest rate limits

WASHINGTON — A coalition of consumer advocates is urging the Federal Deposit Insurance Corporation (FDIC) to downgrade the Community Reinvestment Act (CRA) rating of three banks. Utah’s Capital Community Bank (CC Bank) and First Electronic Bank, along with Kentucky’s Republic Bank & Trust, use “rent-a-bank” schemes to help third-party, non-bank lenders evade state rate caps on loans with up to 225% annual interest rates, failing to meet the convenience and needs of the communities the banks are meant to serve. The groups submitted three separate sets of comments in connection with the CRA examinations of the three banks, describing the high number of consumer complaints their lending partners have generated.

“Thousands of complaints against these banks reveal predatory lending practices and potential violations of the law that strongly support downgrading the Community Reinvestment Act ratings of CC Bank, First Electronic Bank and Republic Bank & Trust,” said Lauren Saunders, associate director at the National Consumer Law Center. “Loans that borrowers can’t afford to repay, with interest rates in excess of state limits, do not meet the needs of communities as required by the CRA.”

The CRA, or Community Reinvestment Act, is a 1977 law intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations.

“High-cost lending is fundamentally unsafe,” said Adam Rust, senior policy advisor at the National Community Reinvestment Coalition. “The FDIC must conclude that rather than serving the needs and conveniences of the public as prescribed by the CRA, banks engaged in predatory rent-a-bank lending like CC Bank, First Electronic Bank and Republic Bank & Trust are undermining the needs of the public.”

Earlier this month, advocates sent a letter urging the FDIC to downgrade another Utah bank, FinWise Bank, for facilitating predatory puppy loans and other deceptive, high-cost loans through retail stores for pets, furniture, auto repairs and appliances. That letter came on the heels of news that the FDIC had downgraded yet another Utah-based bank, Transportation Alliance Bank (TAB Bank), over similar claims. TAB Bank’s CRA rating dropped to “needs to improve,” a low rating that few banks get.

The groups also urged the Utah (CC Bank & First Electronic Bank) and Kentucky (Republic Bank & Trust) bank regulators to stop their banks from helping predatory lenders evade the law.

“Communities don’t need high-cost credit that extracts wealth and crushes borrowers with debt,” said Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending. “The FDIC’s assessment of these rent-a-banks must take into account the full scope of their business practices, including arrangements to facilitate loans in excess of state interest rate caps”

Each of the non-bank lenders involved with the Utah and Kentucky banks faces complaints over extensive consumer harm and potential legal violations. LoanMart, for example, faced scrutiny by California regulators that led to an extensive pause on its lending in the state. Similarly, Elevate and OppFi have faced state government action and private litigation, with OppFi agreeing to pay $2 million to the District of Columbia and to stop usurious lending in the District.

The three banks targeted in the letter are rogue banks that front for predatory lenders. While most states have interest rate limits to stop predatory lending, predatory lenders evade state laws by laundering their loans through banks, which are exempt from state rate caps.

“Banks like Capital Community, First Electronic, and Republic must be stopped from fronting for loans that exceed state interest rate limits across the country,” said Rachel Gittleman, financial services outreach manager at Consumer Federation of America. “A downgrade will signal to banks that the FDIC will hold them accountable for their lending partners’ conduct.”

The comments describe how the three banks’ partnerships with Elevate, LoanMart, NetCredit, OppFi, Check ‘n Go and others have generated hundreds if not thousands of complaints to the Consumer Financial Protection Bureau (CFPB) concerning:

Lack of transparency around high interest rates
Unaffordable loans that borrowers are unable to repay
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.

“Rent-a-bank schemes erase efforts by states to protect residents from predatory lenders,” said Kimberly Fountain, consumer financial justice organizer at Americans for Financial Reform. “The FDIC can protect consumers, particularly low-to-middle-income families and families of color, by downgrading the banks responsible for loans with interest exceeding 200%.”

“Scheming to evade state interest rate caps should be grounds for the lowest possible rating under the CRA,” 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 voters in the State. “The federal banking system was not developed to enable predatory lenders to evade the will of state legislatures.”

“Triple-digit interest loans are no less predatory when laundered through regular banks – and these banks routinely let predatory lenders skirt state usury laws to take advantage of countless vulnerable consumers in their communities,” said Liz Zelnick, Accountable.US’ director of economic security and corporate power program. “If these banks want to act like predatory lenders, they should be treated as such by federal regulators.”

The letters were 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.

Comments to FDIC: Capital Community Bank

Comments to FDIC: First Electronic Bank

Comments to FDIC: Republic Bank & Trust

Letter to Kentucky Department of Financial Institutions: Republic Bank & Trust

Letter to Utah Department of Financial Institutions: Capital Community Bank

Letter to Utah Department of Financial Institutions: First Electronic Bank

Additional Resources