WASHINGTON—A coalition of 20 state attorneys general is urging the nation’s top federal banking regulators to reject bank charter applications from high-cost lenders and other nontraditional financial companies, arguing the move would weaken consumer protections, undermine state authority and increase risks to the financial system.
In a July 15 letter to Federal Deposit Insurance Corp. Chairman Travis Hill, Federal Reserve Chairman Kevin Warsh and Comptroller of the Currency Jonathan Gould, the attorneys general said companies that have relied on high-interest lending or sought to bypass state lending laws should not be granted access to the federal banking system. The letter was led by Illinois Attorney General Kwame Raoul and signed by attorneys general from 19 other states and the District of Columbia.
The attorneys general said some online lenders and fintech companies—including cryptocurrency exchanges and payment platforms—are seeking bank charters or other federal banking privileges that would allow them to operate nationwide while preempting certain state consumer protection laws. They specifically cited Enova and OppFi, alleging the companies have made loans carrying annual percentage rates as high as 195% through partnerships with banks in states without interest-rate caps and are now seeking national bank charters.
Means to Avoid State Laws
According to the letter, granting those applications would allow lenders to avoid state usury laws in 45 states and the District of Columbia, encouraging additional high-cost lending and weakening state enforcement authority. The coalition argued that state interest-rate caps remain the most effective consumer protection against unaffordable loans in the absence of a federal cap.
The attorneys general also contended that such lenders present safety and soundness concerns, pointing to high loan charge-off rates and questioning whether their business models are compatible with federal banking standards requiring prudent underwriting and borrowers’ ability to repay.
Beyond high-cost lenders, the coalition warned regulators against extending banking privileges to cryptocurrency firms and other emerging financial companies through national trust charters or industrial loan company charters. The letter argued that doing so could increase systemic risk while allowing firms to benefit from the credibility and advantages of the banking system without assuming the full regulatory obligations imposed on traditional banks.
Call for Public Hearings
The attorneys general asked the FDIC, OCC and Federal Reserve to hold public hearings and provide ample opportunity for public comment before acting on pending charter applications. They also urged the agencies to deny bank charters, mergers, acquisitions, deposit insurance or other banking privileges to companies that make high-cost loans designed to evade state usury laws or that pose heightened risks to consumers or the financial system.
