Dive Brief:

• Rep. Katie Porter, D-CA, called for the Federal Deposit Insurance Corp. (FDIC) to "heighten its vigilance" in monitoring online lenders that partner with banks. 

• In a letter sent to FDIC Chairwoman Jelena McWilliams on Dec. 20, Porter asked the regulator to look into comments from several high-interest-rate lenders that indicated to investors they may partner with out-of-state banks to avoid a new rate cap in California. 

• The California Legislature in October passed Assembly Bill 539, which caps the annual interest rate at 36% for consumer loans up to $10,000 made by nonbank lenders.

Dive Insight:

Several nonbank lenders have indicated they plan to capitalize on a loophole in the Federal Deposit Insurance Act, which allows state-chartered banks to “export” to other states the loan rates allowed in the state where they are headquartered. 

Nonbank lenders that partner with state-chartered banks can skirt a state’s interest rate limits because the bank is originating the loans.

In her letter to the FDIC, Porter listed Elevate Credit Inc., Enova International Inc. and CURO Group Holdings Corp. as lenders who have indicated they plan to circumvent the new law. 

“As you know, in California, a piece of legislation named AB 539 continues to move ahead,” Elevate Credit CEO Jason Harvison said during an earnings call in July, before the law was passed. “We expect to be able to continue to serve California consumers via bank sponsors that are not subject to the same proposed state level rate limitations.”

Nonbank lenders made 333,416 loans in 2018 that had an annual percentage rate of 100% or higher in California, according to American Banker. 

Those loans had a combined value of $1.1 billion, according to the California Department of Business Oversight’s 2018 report.

Bill proponents said the high rates charged by nonbanks disproportionately target people of color and lower-income borrowers who often end up defaulting on high-interest loans.

Porter, who serves on the House Financial Services Committee, has long been outspoken in her fight against predatory lending and what she calls “rent-a-bank” arrangements, where banks originate a loan and sell it to a lender, who can charge high interest to a consumer.

Porter gave the FDIC the recent earning calls for Elevate, Enova and CURO, during which the lenders indicated they “intend to take advantage of what they view as open season on California lenders,” she wrote in her letter. 

“My request is that you examine these announced plans and keep them close at hand in the coming months,” she wrote.