Arizona law limits interest rates to protect its residents from predatory lending. By way of example, the maximum annual percentage rate (APR) including fees is 41% for a $2,000, two-year installment loan. In 2008, 60% of Arizona voters rejected a payday lender ballot initiative that would have overturned the state’s interest rate maxima.
To get around the interest rate cap, high-cost online lenders have evaded Arizona law by laundering their loans through out-of-state banks, which are not subject to state rate caps, by renting a bank. A “rent-a-bank” scheme is a loan program designed and run by a nonbank lender that collects interest and makes the bulk of the profits with difficult-to-understand terms and conditions. With a bank’s name on the paperwork, the lender claims it is a “bank loan” and therefore exempt from state law imposing caps on interest rates. Yes, banks are exempt from state laws on interest rate caps and these new rules allow a bank to sell, assign, or transfer the triple-digit loan to non-bank lenders.
These lenders prey on Arizonans who find themselves in desperate situations with no choice, such as small business owners, disabled veterans, and other consumers who have and can lose everything including their homes due to the high-interest rates and pre-payment penalties that are not often clearly disclosed.
Here are some online installment lenders who are now using rent-a-bank schemes to evade Arizona law:
▪ Elevate’s Rise uses FinWise Bank or CCBank, both of Utah, to make $500 to $5,000 loans with APRs of 99% to 149%.
▪ Enova, which operates the CashNetUSA payday loan stores, uses NetCredit to make installment loans of $2,500 to $10,000 with APRs up to 99.99% through Republic Bank & Trust of Kentucky.
▪ OppLoans (aka OppFi) makes $400 to $4,000 loans at 160% APR through FinWise Bank, First Electronic Bank of Utah, or CC Bank.
▪ Personify Financial makes $500 to $10,000 loans with APRs as high as 179.99% through First Electronic Bank.
In addition, CURO, which operates the Speedy Cash, Todd Car Title car-title lenders, and Rapid Cash payday lenders, is piloting rent-a-bank loans that may expand to Arizona through Stride Bank of Oklahoma. Avío Credit offers loans up to 130% APR and Verge Credit charges up to 179% APR. CURO has told investors that the Stride Bank program “will help us expand geographically, online and in some states where we —where we don’t operate right now.”
The legality of rent-a-bank schemes is at best questionable. In 2020, the federal bank regulator, the Office of the Comptroller of the Currency, approved a “fake lender” rule that would overturn 200 years of case law. This fake lender rule interferes with state law interest cap protections for small business owners and consumers.
Consumers and small business owners who are concerned about this fake lender rule should contact the Office of the Comptroller and Arizona senators Kyrsten Sinema and Mark Kelly to express their interest and concerns about the federal action.
To preserve Arizona’s authority to stop predatory lending, Arizonans must act and speak to their representatives to:
▪ Overturn recent FDIC and OCC rules that protect the “rent-a-bank” schemes.
▪ Stop banks from helping high-cost nonbank lenders evade state law.
▪ Adopt a national 36% interest maximum rate covering all lenders, including banks!
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