House Financial Services Committee Convenes Hearing on Banks’ Partnerships with Non-Banks

Yesterday, the House Financial Services Committee convened a hearing entitled “Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps.” In the Committee Memorandum for the hearing, the Majority Staff noted that “bank partnerships with non-banks are a rising occurrence in lending. When a loan is originated under such partnership, the bank originates the loan but under the guidelines of the non-bank lender.”

In her opening statement before the Committee, Chairwoman Maxine Waters (D-Calif.) characterized these partnerships as “predatory rent-a-bank schemes, where payday lenders partner with banks to peddle harmful short-term triple digit interest rate loans in states that have reasonable, and often voter-approved interest rate caps to protect consumers.”

During the hearing, the subject of interest rate caps emerged as a contentious issue, particularly among Democratic members of the Committee.

As noted in an American Banker article, Rep. Brad Sherman (D-Calif.) said, “APR I don’t think is the best way to evaluate the cost of short-term loans.”

Additionally, Rep. David Scott (D-Ga.) said that minority bankers he has spoken with “are very concerned about this rate cap and their ability to provide access to credit.”

Republican members of the Committee also voiced their concerns.

“One of the things that concerns me is the misrepresentation of the cost of a loan,” said Rep. Blaine Luetkemeyer (R-Mo.). “APR in my judgment, if you are talking about a loan that is less than one year, is irrelevant.”

Speaking to the Committee as witnesses at the hearing were Assemblywoman Monique Limón, who Chairs the Banking and Finance Committee in the California State Assembly; Graciela Aponte-Diaz, Director of Federal Campaigns at the Center for Responsible Lending; Creola Johnson, Professor at the Ohio State University Moritz College of Law; Lauren Saunders, Associate Director of the National Consumer Law Center; and Brian Knight, Director and Senior Research Fellow for the Mercatus Center at George Mason University’s Program on Innovation and Governance.

On February 26, the Committee will convene a second hearing on the topic at 10:00 AM.