Attorney General Ellison condemns federal effort to let predatory lenders take advantage of consumers
FDIC rule would allow payday and other predatory lenders to skirt state usury laws; AG Ellison joins bipartisan coalition urging withdrawal of rule they say violates law, administrative authority
February 6, 2020 (SAINT PAUL) — Minnesota Attorney General Ellison has joined a bipartisan coalition of 24 attorneys general in opposing a proposal by the Federal Deposit Insurance Commission (FDIC) to preempt state usury laws that regulate payday and other high-cost lending, thereby making it easier for predatory lenders to take advantage of consumers. State usury laws prevent predatory lenders from taking advantage of consumers by charging high interest rates on loans. The FDIC’s proposed rule would enable predatory lenders to circumvent state usury laws through “rent-a-bank” schemes, in which federally regulated banks act as lenders in name only, thereby passing along their exemptions from state laws to non-bank predatory and payday lenders.
“Once again, the federal government under Trump Administration wants to make it easier for predatory lenders to take advantage of Minnesotans and make it harder for them to afford their lives. It’s a basic principle of economic fairness that consumers shouldn’t be ripped off, but over and over again, the Trump Administration is showing that that’s exactly how they want the economy to work. I didn’t get elected the People’s Lawyer to sit back and let that happen,” Attorney General Ellison said.
Payday loans are high-interest, short-term loans that must be paid in full when the borrower receives their next paycheck. Payday lending can trap lower-income people who do not otherwise have access to consumer credit in endless cycles of debt. According to the Pew Charitable Trusts, the average payday loan borrower earns about $30,000 per year and is in debt for nearly half the year because they borrow again to help repay the original loan.
States have historically played a critical role in protecting consumers from predatory lending, using rate caps to prevent the issuance of unaffordable, high-cost loans. While federal law provides a carve-out from state law for federally regulated banks, state law continues to protect residents from predatory lending by non-banks such as payday, auto title, and installment lenders. The new regulations proposed by the FDIC would extend the Federal Deposit Insurance Act exemption for federally regulated banks to these non-bank debt buyers, a sharp reversal in policy that deliberately evades state laws targeting predatory lending.
In a letter to the FDIC, Attorney General Ellison and the bipartisan coalition of attorneys general write, “At a time when Americans of all political backgrounds are demanding that loans with triple-digit interest rates be subject to more, not less, regulation, it is disappointing that the FDIC instead seeks to expand the availability of exploitative loans that trap borrowers in a never-ending cycle of debt.” They argue that “the FDIC has no authority to unilaterally rewrite federal statutory and constitutional law to suit its policy preferences” and that the FDIC’s attempt to extend preemption to non-banks conflicts with the Federal Deposit Insurance Act, exceeds the FDIC’s statutory authority, and violates the Administrative Procedure Act. They urge the FDIC to withdraw the proposed rule.
Attorney General Ellison has also publicly opposed efforts by the federal Consumer Financial Protection Bureau (CFPB) to weaken restrictions in predatory payday lenders. The CFPB director serves as an ex officio FDIC board member.
The letter Attorney General Ellison signed was co-led by California Attorney General Xavier Becerra, Illinois Attorney General Kwame Raoul, and New York Attorney General Letitia James. The bipartisan group that also signed are the attorneys general of Colorado, Connecticut, the District of Columbia, Hawaii, Iowa, Maine, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Tennessee, Vermont, Virginia, Washington, and Wisconsin.
A copy of the comment letter is available on the website of California Attorney General Becerra.