“Bank lease” disappears for payday lenders



Regulatory views on payday lending are tightening. To this end, as reported by the Associated PressCongress voted to repeal Trump-era rulings that allow payday lenders to bypass state interest rate laws.

In terms of mechanics, the rules passed by the Office of the Comptroller (OCC) took effect late last year.

These rules have made possible what at least some observers call a “lease a bank” approach, where a lender can cooperate with a bank that has a national banking charter, prior to paying a salary. And since this charter was not tied to any particular state, the interest rate limits of individual states did not apply to installment loans.

As reported by The Wall Street JournalAccording to OCC rules, the bank or federal savings association that signs the loan documents has traditionally been defined as the “real lender” – even if the loan was actually serviced by the lender before payday. In essence, we are arguing that the non-bank loan was covered by the designation “bank loan”, and thus, in some cases, the annual interest rate charged on these loans can be as high as three-digit percentage points, bypassing states such as California , where the maximum rate is 24 percent, as noted by The Hill

“Government interest rate caps are the easiest way to stop predatory lending, and OCC rules would bypass them completely,” said Lauren Saunders, deputy director of the National Consumer Advocacy Center, a consumer advocacy group, according to AP.

The cancellation must now be signed by President Joseph Biden.

Short-term cash flow problems

The relevance of seeking short-term cash flow (by borrowers) is underscored by the fact that, as recently assessed by PYMNTS and LendingClub, 54 percent of US consumers they have little or no money left after spending their money on basic expenses.

In the same time, as reported herebanks provide services that help, as a temporary measure, to retain consumers, so to speak, and seem to do so without attracting additional (and possibly high-interest) funding sources.

In one example, PNC Bank’s “Low Cash Mode” alerts customers when their balances fall below $ 50, and again when they turn negative. Late last year in another exampleFinTech Sezzle has partnered with Ally Lending, a digital financial services company. The partnership will allow Sezzle to offer more long-term loans.

And in an interview with PYMNTS, CEO of OppFi Jared Kaplan said advanced technology could help banks provide loans to consumers who had no access in the past.

These moves come as at least some states are tightening payday lenders’ rules. In one example as reported by CNBCHawaii caps interest rates on small dollar loans issued in the state at 36 percent. The new rules, the website says, “will also force the licensed payday industry to offer installment loans instead of traditional payday loans with a lump sum two weeks after borrowing the amount.”



About the study: AI In Focus: The Bank Technology Roadmap is a research and interview-based report that looks at how banks are using artificial intelligence and other advanced computing systems to improve credit management and other aspects of their business. The guide is based on a survey of 100 banking executives and is part of a larger series on assessing the potential of AI in finance, healthcare and other sectors.


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