OAKLAND – (INT) - California Attorney General Rob Bonta and 20 other attorneys general are urging federal bank regulators to explicitly disavow so-called rent-a-bank schemes.

Predatory lenders use rent-a-bank schemes in order to attempt to circumvent state laws and charge borrowers interest rates that exceed state limits.

In California, for example, where interest rates are capped at 36% for consumer loans between $2,500 and $10,000, payday lenders have attempted to partner with banks to rent out the bank charter and charge an interest rate of 100% or higher.

In rent-a-bank schemes, a non-bank lender seeks to avoid state interest-rate caps by enlisting a bank that is not subject to those rate caps to act as the "lender" for its loans in name only. In those schemes, the bank acts as a mere pass-through, "selling" the loan back to the non-bank lender.

Predatory lenders use these schemes to charge borrowers exorbitant interest rates that are illegal under California law.

Story Date: October 24, 2021