Four California Legislators Push FDIC to Crack Down on Bank-Fintech Partnerships

In a letter to the FDIC sent earlier this month, four California legislators asked the federal regulator to crack down on partnerships between banks—which are regulated by the FDIC—and fintech companies that they allege use the partnerships to evade maximum annual interest rates in the state. In 2019, the California Legislature passed and the Governor signed AB539, which implemented an APR cap of 36 percent on consumer loans.

“FDIC-supervised depository institutions should not be permitted to originate loans on behalf of third parties who seek to evade state laws that protect consumers from unaffordable interest rates,” the legislators wrote.

Nonbank lenders often partner with banks, who are not bound by the maximum rates in the law, allowing them to issue loans to populations who often find it difficult to access credit because of thin credit files or poor credit histories.

AB539 was passed on the last day of California’s 2019 legislative session by a vote of 61 to 8 in the California State Assembly. California Governor Gavin Newsom signed the legislation into law on October 10, 2019. In addition to the 36 percent APR cap, the legislation also requires creditors to furnish information to at least one national credit reporting agency, mandates creditors offer a credit education program or seminar, prohibits prepayment penalties, requires that loans between $3,000 and $10,000 be repayable in a maximum term of 60 months and 15 days, and mandates a minimum loan term of 12 months for loans between $2,500 and $10,000.