Consumer Groups Decry FDIC Rules on Payday Lending

WASHINGTON – A coalition of 15 state and national consumer protection groups, led by the Consumer Federation of America, has written the Federal Deposit Insurance Corporation to decry the insurer’s regulations that, they said, allow state-chartered banks to get into the payday loan business through third-party vendors. “The plain truth is that FDIC’s draft guidance condones rent-a-charter arrangements between store-front lenders and the handful of state-chartered, FDIC-insured banks willing to partner with them,” said Jean Ann Fox, director of consumer protection for CFA. “Payday lenders will continue to turn to banks supervised by the FDIC to provide cover for loans that would otherwise be illegal,” Fox said. Two other federal financial regulators, the Office of the Comptroller of the Currency and the Office of Thrift Supervision had already cracked down on so-called charter renting. The OCC has closed down four national banks’ payday lending operations that they were conducting via third party vendors. The OTS has similar regulations in place. “There is no reason to believe that the payday lenders found to be operating in an unsafe and unsound manner with national banks will safely conduct payday loan operations through the even smaller, state-chartered nonmember banks overseen by the FDIC,” Fox said. Unlike the OTS and OCC, the FDIC has not out and out banned state-chartered banks from taking part in payday lending arrangements, but has instead sought to issue regulations that govern how they do so. The coalition, which included Consumers Union, the U.S. Public Interest Research Group and the National Community Reinvestment Coalition, among others, demanded that the FDIC “definitively” ban state-chartered banks from renting their charters to payday lenders. They also asked the FDIC to adopt regulations governing loan repayment to discourage so-called “flipping” or rolling over payday loans. They also asked that state chartered banks which engage in payday lending be inspected “immediately” for safety and soundness issues. The Coalition identified six FDIC insured, state chartered banks around the country that are involved in payday lending. The six are County Bank of Rehoboth Beach, Del.; BankWest, Inc., Pierre, S.D.; Republic Bank and Trust Company, Ky.; First Community Bank of Washington; First South Bank, Spartanburg, S.C.; and First Fidelity Bank, Burke, S.D. One Federal Reserve member bank, First Bank of Delaware, also partners with payday lenders, the Coalition said.