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WASHINGTON--Democratic members of the House Financial Services Committee this week expressed “disappointment” with the Federal Deposit Insurance Corporation’s (FDIC) draft guidelines for banks that have quasi-partnerships with payday lending companies.
In a letter to FDIC Chairman Donald E. Powell dated March 18, the signatories welcomed the agency’s efforts but also called on the FDIC to craft guidelines that would prohibit FDIC-insured state banks from entering into “rent-a-charter” partnerships that undercut state laws against payday lending and abuse federal preemption authority. A payday loan is a short-term loan that uses a borrower’s post-dated check as collateral, which the lender redeems when the loan is due.
In many instances the payday lender can use aggressive collection practices that include threatening criminal prosecution for writing a bad check—despite the fact that lenders routinely accept post-dated checks drawn on accounts that have insufficient funds.
Several states have enacted legislation that restricts or bans these loans, which can have annual interest rates of more than 470 percent. However, payday lenders have found ways to circumvent these laws by teaming up with banks and thrifts to use their exportation and preemption privileges. This practice has been condemned by consumer advocates because it takes advantage of consumers who are already hard-pressed to pay their debts and recently has been found to target military personnel.
“This charter-renting practice is offensive because it ensures that the most vulnerable consumers will continue to be gouged by these predatory practices and state laws will be weakened. The FDIC should denounce this malicious practice,” said Rep. Bernie Sanders, Ranking Member of the Committee’s Financial Institutions and Consumer Credit Subcommittee.
The letter also notes that unlike the FDIC, the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) “have both taken decisive action” to tell banks and thrifts that such partnerships represent a misapplication of federal preemption authority.
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The Committee oversees all components of the nation’s housing and financial services sectors including banking, insurance, real estate, public and assisted housing, and securities. The Committee continually reviews the laws and programs relating to the U.S. Department of Housing and Urban Development, the Federal Reserve Bank, the Federal Deposit Insurance Corporation, Fannie Mae and Freddie Mac, and international development and finance agencies such as the World Bank and the International Monetary Fund. The Committee also ensures enforcement of housing and consumer protection laws such as the U.S. Housing Act, the Truth In Lending Act, the Housing and Community Development Act, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act, the Community Reinvestment Act, and financial privacy laws. |
