The first, more detailed comment letter was submitted by the following civil rights and consumer organizations:
The second, short comment letter was submitted by several leading civil rights, community, consumer, and faith groups. Full text of the short letter is at bottom.
The longer, more detailed comment letter states in part:
By permitting unprecedented blending of commercial and financial activities, and by making it easier than ever to make high-cost loans above states' interest rate limits, this proposal is a recipe for disaster. And no one will feel the misery worse than the millions of households, disproportionately households of color, who are targeted by the abusive lending the proposal will proliferate...
Adding the new label 'fintech' to high-cost lending may attract investors and make it easier for banking regulators to justify their support, but it doesn't soften the blow high-cost loans land on struggling families.
[T]he proposal wholly fails to consider the strong likelihood that it will cause a significant increase in predatory lending, either directly by companies that acquire ILCs or obtain ILC charters, or indirectly through increased rent-a-bank schemes with ILC banks.
The short comment letter states in part:
These loans target financially distressed individuals, compound their debt burden, and leave them worse off. High-cost lenders also disproportionately prey on communities of color, stripping them of income, widening the racial wealth gap, and more deeply entrenching systemic racism. Rather than promote financial inclusion, as they claim, high-cost lenders fuel financial exclusion.
In March, the
Full text of the short letter:
Re: Comments on FDIC Notice of Proposed Rulemaking, Parent Companies of Industrial Banks and Industrial Loan Companies
The undersigned civil rights, community, consumer, and faith organizations write to strongly oppose the
Interest rate limits are the single most effective tool states have to protect their residents from predatory loans. Predatory loans include payday and car title loans that often carry annual interest rates as high as 300% or more. Predatory loans also include high-cost installment loans and lines of credit with rates approaching and well exceeding 100%. These loans target financially distressed individuals, compound their debt burden, and leave them worse off. High-cost lenders also disproportionately prey on communities of color, stripping them of income, widening the racial wealth gap, and more deeply entrenching systemic racism. Rather than promote financial inclusion, as they claim, high-cost lenders fuel financial exclusion.
These high interest rates do not just make loans dramatically more expensive than mainstream loans. They also fundamentally alter the repayment structure, as borrowers can make payments for many months or even years without seeing any significant reduction in principal. As a result, these high rates also warp market incentives, where lenders succeed even if borrowers eventually default in great numbers.
This proposal comes amidst a number of attacks on state usury limits by federal banking regulators in recent years, as state-regulated lenders increasingly look to federal regulators to help them avoid state laws. The ILC charter is no different. By making it easier for predominantly online non-bank lenders to obtain bank charters, while avoiding consolidated supervision of the
A disproportionate number of ILCs are also engaged in rent-a-bank arrangements; these are all chartered in
Experience has demonstrated that parents of ILCs pose excessive risks that the
We wholly reject any notion that approval of additional ILC charters may enable lenders to meet the credit needs of the financially vulnerable. To the contrary, they would make the financially vulnerable more so by facilitating the spread of predatory lending and undermining states' ability to stop it.
We appreciate your consideration of our concerns.
Arkansans Against Abusive Payday Lending,
Arkansas Community Organizations,
Consumer Action, National
Missouri Faith Voices,
New Jersey Citizen Action,
THE ONE LESS FOUNDATION,