How Some Banks Charge More than Payday Lenders for Small Loans
Rent-a-bank schemes allow bankers to act like payday predators
Most people associate payday loans — whether through storefronts or online operations — with shady business dealings and legalized loan sharking. Often, these fast-credit, small-dollar lenders are the last resort for low-income people facing a financial emergency.
By the same token, the perception of FDIC-backed banks is that while they may not offer loans in this market of desperation, they do conduct business in a way that is at least somewhat fair and reasonable. After all, they’re answering to a federal regulator.
However, a new report from Pew suggests that a handful of FDIC-supervised banks are acting just like payday predators — offering out their services in so-called “rent-a-bank” schemes in order to charge rates from 90–200% on small dollar loans.
In the report, Pew explains how banks get away with these schemes:
Rent-a-bank partnerships have resulted in loans that carry annual percentage rates that typically range from the 90s to the low 200s — rates that are much higher than what banks usually charge or that the laws of many borrowers’ states permit. But banks have pre-emption authority, meaning they can issue loans under…
