On October 18, consumer advocate groups and 19 state attorneys general wrote comment letters, urging banking regulators to denounce “rent-a-bank” arrangements between financial institutions and fintechs or other third-party providers.

The consumer advocates and attorneys general both push regulators to address and denounce financial institutions partnering with nonbanks to engage in high-cost lending otherwise prohibited by state laws establishing lower interest rates for nonbank entities. Both letters note Congress’ repeal of the Office of the Comptroller of the Currency’s (OCC) true lender rule in June 2021, saying that any guidance issued disfavoring these partnerships is consistent with the repeal.

The Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), and OCC each issued their own guidance on these partnerships in the past, and now propose to replace such guidance with a unified framework for the institutions they regulate. While the FDIC and OCC previously criticized these relationships, they have not issued any explicit guidance or rulemakings. Moreover, these three agencies recently released a guide to help community banks assess fintech partnerships, as we discussed here, which lacked any discussion regarding lending relationships.

The consumer advocate groups’ letter was particularly scathing of the FDIC, stating, “These schemes reflect the ongoing failure of the FDIC to stop these six supervisee banks from renting their charters to non-bank lenders making illegal high-cost loans. They are causing severe harm to consumers, as well as posing risks to the banks.” The letter further noted that there are many legitimate purposes for banks to partner with third parties, but “assisting a third party in the violation or evasion of state laws is not one of them.”

Both the consumer law groups and the attorneys general request that regulators disavow these bank partnerships, noting that any lack of written guidance will allow these relationships to continue.

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Photo of James Stevens James Stevens

James Stevens provides general corporate and regulatory advice to our clients. James has substantial experience in the representation of public and private companies, including financial institutions, marketplace lenders and other FinTech and financial services companies, in mergers and acquisitions, securities offerings and regulatory…

James Stevens provides general corporate and regulatory advice to our clients. James has substantial experience in the representation of public and private companies, including financial institutions, marketplace lenders and other FinTech and financial services companies, in mergers and acquisitions, securities offerings and regulatory reporting and compliance. He often serves as the principal outside counsel for these clients.

Photo of Chris Capurso Chris Capurso

Chris’ practice focuses on consumer financial services law, primarily on federal and state law compliance matters. Chris regularly advises financial institutions, lenders, and sales finance companies in the development and maintenance of closed-end and open-end lending, automobile finance, fintech, point-of-sale, small dollar, and…

Chris’ practice focuses on consumer financial services law, primarily on federal and state law compliance matters. Chris regularly advises financial institutions, lenders, and sales finance companies in the development and maintenance of closed-end and open-end lending, automobile finance, fintech, point-of-sale, small dollar, and other credit programs. He provides guidance on federal consumer protection laws and regulations, including TILA, ECOA, ESIGN, and GLBA.

Photo of Carlin McCrory Carlin McCrory

Carlin is a regulatory, compliance, and payments attorney with experience representing financial institutions, fintechs, lenders, debt collectors, payment processors, neobanks, virtual currency companies, and mortgage servicers.