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Published: July 2020

FDIC plans to preempt state lending protections is met with ire from advocates

Consumer Action joined with a broad coalition of advocacy organizations in warning the Federal Deposit Insurance Corporation (FDIC) that its proposed rule for chartering additional underregulated Industrial Loan Companies (ILCs) would expand predatory, high-interest lending. The plan would grant the predominantly online non-bank companies that are approved for an ILC with preemptory powers over state consumer protection laws, including interest rate caps. The FDIC is already turning a blind eye to rent-a-bank schemes where non-bank lenders piggyback off ILC and bank charters to issue loans of around 100% APR and higher.

In March, the Federal Deposit Insurance Corporation (FDIC) approved two new Industrial Loan Companies (ILCs) charters, the first in over a decade. In so doing, the FDIC failed to adequately address concerns the agency itself has long had about its authority to effectively supervise ILCs. By permitting unprecedented blending of commercial and financial activities, and by making it easier than ever to make high-cost loans above states’ interest rate limits, this proposal is a recipe for disaster. No one will feel the misery worse than the millions of households, disproportionately households of color, who are targeted by the abusive lending the proposal will proliferate.

The FDIC’s proposed ILC rule is among the attacks on state usury limits by federal banking regulators in recent years. These attacks include a proposed Office of the Comptroller of the Currency (OCC) “special purpose charter” and also rules issued by the FDIC and OCC that make it easier for banks to essentially rent out their charter to non-banks that then try to use the charter’s power to preempt state rate caps.

Lead Organization

National Consumer Law Center (NCLC)

Other Organizations

Center for Responsible Lending | National Consumer Law Center (on behalf of its low income clients) | Americans for Financial Reform Education Fund Consumer Action | Consumer Federation of America | The Leadership Conference on Civil and Human Rights NAACP | National Association of Consumer Advocates | National Association for Latino Community Asset Builders | UnidosUS | U.S. PIRG

More Information

Click here to read the letter in full.

For more information, please visit NCLC.

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