‘Rent A Bank’ Fades For Payday Lenders, FIs Step In On Short-Term Loans 

The regulatory gaze on payday lending is tightening. To that end, as reported by the Associated Press, Congress has voted to overturn Trump-era regulations that let payday lenders sidestep state laws that cap interest rates.

In terms of mechanics, the rules, which had been in place by the Office of the Comptroller of the Currency (OCC), took effect late last year.

Those rules enabled what is known by at least some observers as a “rent a bank” approach whereby the payday lender could partner with a bank that has had a national banking charter in place. And because that charter was not tied to any single state, the individual state interest rate caps would not apply to installment loans.

As reported by The Wall Street Journal, under the terms of the OCC rule, a bank or federal savings association that signs loan documents was traditionally defined as the “true lender” — even if the loan was in fact serviced by a payday lender. In essence, we contend, the non-bank loan has been blanketed with a “bank loan” designation, and thus in some cases, the APR levied on those loans can reach triple-digit percentage points, circumventing states like, say California, where the top rate is 24 percent, as noted by The Hill.

“State interest rate limits are the simplest way to stop predatory lending, and the OCC’s rules would have completely bypassed them,” said Lauren Saunders, associate director at the National Consumer Law Center, a consumer advocacy group, per AP.

The repeal now goes to President Joseph Biden to sign.

Short-Term Cash Flow Concerns 

The urgency of finding short-term cash flow (on the part of borrowers) is underscored by the fact that, as PYMNTS and LendingClub estimated recently that 54 percent of U.S. consumers have little to no money left over after spending their money to meet basic expenses.

At the same time, as reported here, banks have been bringing out services that help as stopgap measures to keep consumers going, so to speak, and presumably do so without tapping extra (and perhaps high-interest) funding sources.

In one example, PNC Bank’s “low-cash mode” alerts customers when their balances dip below $50 and again when they go negative. Late last year, in another example, FinTech Sezzle struck up a partnership with Ally Lending, a digital financial services company. The partnership will allow Sezzle to offer more long-term loans.

And in an interview with PYMNTS, OppFi CEO Jared Kaplan said advanced technologies can help banks to extend credit to consumers who have lacked access in the past.

The moves come against a backdrop where at least some states are tightening how payday lenders can operate. In one example, as reported by CNBC, Hawaii is capping interest rates on small dollar loans made in the state at 36 percent. New rules, said the site, “will also force the licensed payday industry to offer installment loans in place of traditional payday loans with a single payoff due two weeks after an amount is borrowed.”