As of this writing, 21 states and the District of Columbia have outlawed triple-digit interest rates on payday loans and similar credit products. These hard-won consumer victories largely stopped lenders from trapping people in triple-digit interest rate debt — key strides towards financial freedom.
But now, Enova and Opportunity Financial (OppFi), a pair of predatory lenders listed on the New York Stock Exchange, have turned to a different approach for continued exploitation of the nation’s working poor: becoming a bank.
By seeking federal approval to acquire national bank charters, once again working people would be snared into long-term debt traps and increased financial instability in the throes of a nation already grappling with an affordability crisis.
Federal banking regulators are fast-tracking these lenders’ bank applications, without offering opponents an opportunity to discuss their concerns.
With a national bank charter, predatory lenders would gain an end-run advantage to once again impose triple-digit loan rates even in states with existing lending rate caps. This regressive regulatory move also comes at a time when the federal government is decreasing lender supervision and enforcement. State usury limits are the only source of these loan protections for borrowers not covered under the federal Military Lending Act.
National banks are supposed to provide a “public benefit.” But in these instances, the private corporations — not the public — would benefit.
OppFi, a digital finance platform that makes short-term installment loans at up to 195% Annual Percentage Rate (APR), has announced plans to acquire Arizona-based BNC National Bank (BNC). At the start of this year, BNC had approximately $1.1 billion in total assets and approximately $1 billion in total deposits.
Enova, a lender fined by the Consumer Financial Protection Bureau for repeated anti-consumer behavior, is seeking to acquire Grasshopper Bank, based in New York City with assets of $1.59 billion. Enova is better known by the names of its consumer and small business loan brands — CashNetUSA, NetCredit and OnDeck.
A coalition of civil rights and consumer groups in an April letter urged Federal Reserve Chair Jerome Powell to reject the applications of these predatory lenders, pointing to new analysis which shows that a disproportionate number of complaints against Enova were generated in predominantly Black and Latino communities, raising questions of equity and disparate impact.
In part the coalition letter states, “Black and Latino communities typically lack access to small business capital due to unaddressed systemic discrimination. The answer is not to lend at predatory rates as Enova does. Underserved communities should not be subject to such high, predatory costs. … Products that increase indebtedness, drive borrowers out of the banking system, and disproportionately harm communities of color are not a public benefit under any reasonable regulatory construction of that term. The Federal Reserve’s review must account for the quality and cost of credit being offered, not merely its availability.”
The letter was signed on behalf of the Legal Defense Fund, NAACP, and the Leadership Conference on Civil and Human Rights, National Consumer Law Center (NCLC) and the Center for Responsible Lending (CRL).
And this January, CRL released a research report, Lost Opportunities: How OppFi Traps Borrowers in Unaffordable Debt. CRL’s analysis of OppFi’s transactional data uncovered examples of borrowers caught in an unaffordable cycle of loan repayment, including instances of refinancing two to three months after taking out an installment loan ranging from $500–$5,000 with interest rates up to 195% APR.
“This national bank affiliation scheme would enrich a handful of rogue lenders looking to evade state interest rate limits so they can siphon millions of dollars in excess fees from consumers’ wallets,” said Ellen Harnick, executive vice president at CRL. She said the findings show that OppFi’s lending does not serve community needs, and approval would allow the bank to export predatory consumer loans to many more states, putting tens of thousands of borrowers at risk of falling into extended debt traps.
More recently, the National Consumer Law Center, also weighed in on the proposed bank charter.
“President Trump should not allow OppFi to become a national bank and spread high interest rate pain across the country,” said Lauren Saunders, a NCLC senior attorney. “At a time of an affordability crisis, the Trump administration is considering allowing new national banks that would charge triple-digit interest rates, well above state interest rate limits approved by voters and legislatures in 45 states.”
Bank charters provide private companies with public benefit. They must only be granted when lending is fair, not predatory.
Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.