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Groups Slam Feds for Failing to Crack Down on Rent-a-Bank Schemes


Wednesday, October 20, 2021   

CARSON CITY, Nev. -- Twenty state Attorneys General, including Aaron Ford from Nevada, are slamming proposed new federal banking guidelines for not addressing what are known as "rent-a-bank" schemes.

The state leaders asked federal regulators for a crackdown on non-bank lenders that partner with real banks to make loans sold to the non-bank partner.

By using the bank's name on paperwork, the non-bank can claim the loan should not be subject to state regulations, including interest-rate caps.

Rebecca Borné, senior policy council at the Center for Responsible Lending, said the federal guidance should explicitly condemn rent-a-bank arrangements.

"Because the guidance is essentially silent on it, it definitely raises the question of, is it going to be read as permission for more banks to engage in these rent-a-bank schemes?" Borné pointed out.

Also Tuesday, a coalition of consumer and civil rights groups sent a letter to federal regulators calling for a crackdown on rent-a-bank partnerships.

In June, President Joe Biden eliminated a Trump-era "true lender" rule, saying it favored predatory lenders over consumers.

A report from the National Consumer Law Center said in Nevada, a company called Elevate offers loans under the "Rise" brand, with interest rates of 149%, in connection with FinWise Bank or Capital Community Bank. Elevate also offers "Elastic"-branded loans up to 109% effective APR, through Republic Bank and Trust.

Nevada passed a bill in 2019 limiting predatory lending practices and capping interest rates to about 40% for installment loans.

Borné noted loans with high rates can lead to an unending cycle of debt.

"These loans are designed to be unaffordable," Borné asserted. "Lenders succeed by causing borrowers to fail. Customers pay on these loans for years, often without reducing the principal."

The National Consumer Law Center also warned of a company known as Axcess Financial, working under the name "Check 'n Go." It offers loans with the brand-name "Xact," up to 199% APR, through an agreement with Capital Community Bank.

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