At HFSC Hearing, Conservative Members Defend Rent-a-Bank Schemes After Taking Tons of Rent-a-Bank Money

This press release was originally posted through Allied Progress. Allied Progress is now Accountable.US.

Washington DC – Predatory lenders got their money’s worth at today’s hearing on Rent-a-Bank schemes in the House Financial Services Committee. Members who’ve taken thousands in campaign cash from the very companies that utilize the rent-a-bank scheme – including Patrick McHenry, Andy Barr and Roger Williams – took turns defending such shady arrangements or taking cheap shots at the “Veterans and Consumers Fair Credit Act” – arguably the strongest measure to keep consumers out of the payday debt trap ever to come before Congress. The bipartisan bill, backed by several veterans advocacy groups and even MAGA conservative Rep. Glenn Grothman (R-WI), would expand the Military Lending Act’s 36% rate cap to veterans, Gold Star Families and all consumers nationwide – a blessing for borrowers in states where 400% or higher APRs are common and perfectly legal.

The national rate cap bill would also permanently close the loopholes proposed by the Trump administration that would allow predatory lenders to sidestep state interest rate caps by funneling loans through chartered banks — the scheme better known as “Rent-a-Bank.” Under the proposal advanced by the OCC and FDIC (with CFPB Director Kathy Kraninger’s support), payday lenders would be permitted to flout the law in 26 states and Washington DC and charge interest rates as high as 160%. A triple digit interest payday loan is no less predatory when it’s laundered through a chartered bank.

“It’s clear that some Committee Members are more worried over keeping the predatory lender money spigot open than the potentially billions of dollars consumers would save every year with a national interest rate cap. The cap has already worked wonders to keep predatory lenders off the backs of our brave service members and their families,” said Jeremy Funk, spokesman for Allied Progress. “Congress has a bipartisan opportunity to build on that success and afford the same protections from financial ruin for veterans and all hard-working Americans. Plus, putting billions more dollars in consumers’ pockets will help grow the economy rather than the profits of financial industry bottom feeders.”

The bipartisan “Veterans and Consumers Fair Credit Act” would also mitigate the mass consumer harm that would result from Trump-Kraninger CFPB’s proposal to permanently undo the ability-to-repay standard, a critical protection against the payday loan debt trap. The payday industry has already padded its profits by over $3.1 billion thanks to the administration’s decision in August to delay the implementation of the safeguard that would keep payday lenders from approving high-interest loans to vulnerable people they know cannot pay back them back in time. A national interest rate cap would stop the economic hemorrhaging.

WHAT YOU NEED TO KNOW:

Banks and Lenders With A Stake In Rent-A-Bank Schemes—Which Allow The Payday Industry To Evade State Laws—Have Given Tens Of Thousands Of Dollars To Conservative House Financial Services Committee Members

Rep. Patrick McHenry (R-NC) Has Received At Least $10,500 From Banks Or Lenders With An Interest In The Deregulation Of Rent-A-Bank Schemes and Over $156,000 From The Payday Industry In General.

Rep. Patrick McHenry (R-NC) Has Received At Least $10,500 From Banks Or Lenders With An Interest In The Deregulation Of Rent-A-Bank Schemes.

Since Joining Congress, Patrick McHenry Has Received $156,899 From The Payday Lending Industry. [“Payday Lenders: Money to Congress,” OpenSecrets, accessed 01/30/20]

Rep. Andy Barr (R-KY) Has Received At Least $12,500 From Banks Or Lenders With An Interest In The Deregulation Of Rent-A-Bank Schemes And Nearly $47,000 From The Payday Industry In General.

Rep. Andy Barr (R-KY) Has Received At Least $12,500 From Banks Or Lenders With An Interest In The Deregulation Of Rent-A-Bank Schemes.

Since Joining Congress, Andy Barr Has Received $46,627 From The Payday Lending Industry. [“Payday Lenders: Money to Congress,” OpenSecrets, accessed 01/30/20]

Rep. Roger Williams (R-TX) Has Received At Least $3,000 From Banks Or Lenders With An Interest In The Deregulation Of Rent-A-Bank Schemes And Nearly $44,000 From The Payday Industry In General.

Rep. Roger Williams (R-TX) Has Received At Least $3,000 From Banks Or Lenders With An Interest In The Deregulation Of Rent-A-Bank Schemes.

Since Joining Congress, Roger Williams Has Received $43,850 From The Payday Lending Industry. [“Payday Lenders: Money to Congress,” OpenSecrets, accessed 01/30/20]

Payday Lenders Are Already Using “‘Rent-A-Bank’” Schemes In Order To Avoid State Interest Rate Caps And Even State Laws Outright Banning Payday Loans, While Other Lenders Are Exploring Similar Arrangements.

The Federal Deposit Insurance Corporation (FDIC) And The Office Of The Comptroller Of The Currency (OCC) Have Proposed A Rule To Open The Door For Payday Lenders To Bypass State Interest Rate Caps By “Funneling Their Loans Through A Chartered Bank,” A Practice Commonly Known As A “‘Rent-A-Bank’ Scheme.”

The Federal Deposit Insurance Corporation (FDIC) And The Office Of The Comptroller Of The Currency (OCC) Have Proposed A Rule That Would “Effectively Eliminate Regulations On Payday Lending And Interest Rates” By Allowing Payday Lenders To “Funne[l] Their Loans Through A Chartered Bank,” Commonly Known As A “‘Rent-A-Bank’ Scheme.” “Two top banking regulators, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), have proposed a controversial rule that could effectively eliminate regulations on payday lending and interest rates—a huge gift to predatory consumer finance.[…] The rule would overturn a 2015 court decision that has proven surprisingly durable, even amid the conservative drift of the courts. It would codify a doctrine known as ‘valid-when-made,’ which critics consider invented by debt collectors and their allies out of whole cloth. In practice, it would mean that any payday lender could evade interest rate caps or other state-level restrictions by funneling their loans through a chartered bank. This is sometimes known as a ‘rent-a-bank’ scheme.”[David Dayen, “Trump’s Bank Regulators Open the Door to More Predatory Lending,” The American Prospect, 11/19/19]

This Scheme Is Already Being Used By Payday Lenders To Avoid Interest Rate Caps In Minnesota, Montana, And Oregon And To Flout Other States That Have Outright Banned Payday Loans.

Elevate Financial Currently Uses Kentucky-Based Republic Bank & Trust In Order To Receive “Pre-Emption Protection,” With “Elevate Suppl[ying] The Underwriting Software” And Republic Bank Holding Onto The Loan And Then Selling “A 90 Percent ‘Participation Interest’ To An Affiliate Of Elevate.” “Non-bank payday lenders try to get in on the action by putting a bank’s name on the loan, allowing them the pre-emption protection. One company engaged in this is Elevate Financial. Its line-of-credit product, Elastic, uses Republic Bank, which is chartered in Kentucky, to make the loans. Elevate supplies the underwriting software and therefore controls who gets a loan. Republic Bank holds onto the loans, but then sells a 90 percent ‘participation interest’ to an affiliate of Elevate. Functionally speaking, Elevate issues and effectively owns the loans, but it has a legal fig leaf that enables it to point to Republic Bank as the actual lender.” [David Dayen, “Trump’s Bank Regulators Open the Door to More Predatory Lending,” The American Prospect, 11/19/19]

• Kentucky-Based Republic Bank & Trust Is Associated With Elastic Credit. “Republic Bank & Trust Company, member FDIC, is the issuing bank for the Elastic line of credit. Founded in 1982 and headquartered in Louisville, Kentucky, Republic Bank & Trust Company has grown into the largest Kentucky-based bank with over $4 billion in assets and nearly 50 banking centers.” [“About Us,” Elastic Credit, accessed 01/31/20]

By Going Through State-Chartered Banks Like FinWise, Elevate Is Able To Bypass Interest Rate Caps “In States Like Minnesota, Montana, and Oregon,” While “Sell[ing] What Is Effectively A Payday Lending/Installment Loan Product Called Rise In States Where Payday Lending Has Been Banned.” “This enables Elevate to sell Elastic, which its financial disclosures say carries an annual percentage rate of 109 percent, in states like Minnesota, Montana, and Oregon, which cap interest rates at 36 percent. It also allows Elevate to sell what is effectively a payday lending/installment loan product called Rise in states where payday lending has been banned, like Arizona. FinWise Bank, chartered in Utah, has also been helping Elevate and Opploans, a separate company, make loans with interest rates as high as 160 percent.” [David Dayen, “Trump’s Bank Regulators Open the Door to More Predatory Lending,” The American Prospect, 11/19/19] 

Payday Lenders Enova International, Elevate Credit, And Curo Group Holdings Signaled They Would Use Rent-A-Bank Schemes To Bypass A New California State Law Capping Interest Rates For High-Cost Installment Loans–With One Lender Even Stating “‘There’s No Reason Why We Wouldn’t Be Able To Replace Our California Business With A Bank Program.’”

In October 2019, California Governor Gavin Newsom Signed A Law That Would “[Subject] Installment Loans Of Between $2,500 And $9,999 To A Rate Cap Of 36% Plus The Federal Funds Rate.” [Kevin Wack, “High-cost lenders already seeking ways around crackdown in California,” American Banker, 10/15/19]

The Leadership Of Payday Lenders Enova International, Elevate Credit And Curo Group Holdings – Who In 2018 “Accounted For Roughly One-Quarter Of All Loans That Would Be Covered By The New Law And Had APRs Of At Least 100%” – Had All Suggested That “Bank Partnerships Will Allow Them To Continue Charging High Rates In California.” [Kevin Wack, “High-cost lenders already seeking ways around crackdown in California,” American Banker, 10/15/19]

• “‘There’s No Reason Why We Wouldn’t Be Able To Replace Our California Business With A Bank Program,’ Said Enova CEO David Fisher.” [Kevin Wack, “High-cost lenders already seeking ways around crackdown in California,” American Banker, 10/15/19]
• “[Curo Group Holdings] CEO Don Gayhardt Said That The Wichita, Kan., Firm Has Had A Lot Of Practice In Adapting To State Regulatory Changes.” [Kevin Wack, “High-cost lenders already seeking ways around crackdown in California,” American Banker, 10/15/19]

In November 2019, The CEO Of Elevate Credit Outlined His Company’s Intentions To Use “Three Existing FDIC Regulated Bank Partners” After California Enacted An Interest Rate Cap, Adding The Company Was “Continuously Looking For Additional Banks” To Partner With. 

On A November 4, 2019 Earnings Call, Elevate Credit CEO Jason Harvison Told Investors That Even Though Elevate Would “Stop Originating Loans Through [Their] Direct Lending Channel In California,” He Believed It Would Not Have A “Material Impact On Our Business Due To Our Diversified Operating Model And Additional Opportunities.” Elevate Credit CEO Jason Harvison said, “Now turning to Slide 6. I like to highlight a few business updates. As you’re all probably aware, California passed a law that caps interest rates on personal loans between $2,500 and $10,000. We believe that this action unfairly limits credit options to California non-prime consumers. As a result, we will stop originating loans through our direct lending channel in California once the law goes into effect. However, we do not believe that it’ll have a material impact on our business due to our diversified operating model and additional opportunities.” [“Elevate Credit’s (ELVT) Management on Q3 2019 Results – Earnings Call Transcript,” Elevate Credit Inc. via Seeking Alpha, 11/04/19]

• Jason Harvison Was Named CEO Of Elevate Credit In 2019. [“Jason Harvison,” Elevate Credit, accessed 01/31/20]

Jason Harvison Went On To Cite Elevate’s “Three Existing FDIC Regulated Bank Partners In New Geographies,” While Noting His Company Was “Continuously Looking For Additional Banks That Share Our Commitment To Providing Innovative Consumer-Focused Products.” “One of those opportunities is to expand our underwriting technology licensing to our three existing FDIC regulated bank partners in new geographies. In addition, we are continuously looking for additional banks that share our commitment to providing innovative consumer-focused products.” [“Elevate Credit’s (ELVT) Management on Q3 2019 Results – Earnings Call Transcript,” Elevate Credit Inc. via Seeking Alpha, 11/04/19]

Curo Group Holdings Stated In A Disclosure That California’s Interest Rate Cap Would Have A “Material Adverse Effect On Our Results Of Operations And Financial Condition.”

In Its 2018 Annual Report, Curo Group Holdings Specifically Cited California’s State Interest Rate Cap As Having A “Material Adverse Effect On Our Results Of Operations And Financial Condition” If Passed. “On February 13, 2019, Assembly Bill 593 [sic] in California was introduced. Primarily, Assembly Bill 593 [sic] proposes an interest rate cap on all consumer loans between $2,500 and $10,000 of 36% plus the Federal Funds Rate. While it is very early in the legislative process, this bill as written would have a material adverse effect on our results of operations and financial condition. We, along with others in the short-term consumer loan industry, intend to continue to inform and educate legislators and regulators and to oppose legislative or regulatory action that would unduly prohibit or severely restrict short-term consumer loans as compared with those currently allowed.” [“Curo Group Holdings Corp. 2018 10-K,” United States Securities and Exchange Commission, 03/18/19]

Just Days After California Governor Gavin Newsom Signed A Bill Establishing An Interest Rate Cap, The CEO Of CURO Group Informed Investors That It Had Entered A New Bank Partnership Agreement.

On October 2019, California Governor Gavin Newsom Signed Assembly Bill B39 Which “Bar[red] Payday Lenders From Charging High Interest Rates – Sometimes As High As 200 Percent – On Loans Between $2,500 And $10,000.” “Governor Gavin Newsom today signed into law a measure protecting consumers from predatory lending practices that create ‘debt traps’ for families already struggling financially. AB 539 by Assemblymember Monique Limόn (D-Santa Barbara) promotes affordable and accessible credit for consumers and encourages responsible lenders to offer safer loan alternatives. The bill bars payday lenders from charging high interest rates – sometimes as high as 200 percent – on loans between $2,500 and $10,000.” [Press Release, Office of Governor Gavin Newsom, 10/10/19]

On October 25, 2019, Curo Group Holdings CEO Donald Gayhardt Told Investors During A Q3 Earnings Call That While Curo Group Had Ended Its Prior Bank Partnership With MetaBank It Had “Enter[ed] Into A New Agreement To Offer Analytics, Marketing And Servicing Support To Another Bank.” “A quick word on MetaBank and bank relationships in general. After almost 18 months of hard work by a lot of people in our team, we decided to direct our efforts elsewhere during the quarter, so we mutually agreed to terminate our partnership agreement with MetaBank. But during the quarter, we did enter into a new agreement to offer analytics, marketing and servicing support to another bank and look forward to discussing this arrangement more in the near future.” [“CURO Group Holdings Corp (CURO) CEO Donald Gayhardt on Q3 2019 Results – Earnings Call Transcript,” CURO Group Holdings Corp. via Seeking Alpha, 10/26/19]

• Donald Gayhardt Has Been The CEO For Curo Group Holdings Since 2012. [“Don Gayhardt,” Curo Group Holdings, 01/31/20]

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