Attorney General Josh Stein Fights to Protect North Carolinians from Payday Loans and Abusive Lending

RALEIGH, NC (January 22, 2019) —Attorney General Josh Stein today urged the Federal Deposit Insurance Corporation (FDIC) to ensure strong protections for borrowers as it develops guidance for banks that issue small-dollar loans. A coalition of 14 attorneys general, including Attorney General Stein, submitted comments calling on the FDIC to help ensure that banks make loans that comply with state laws banning high-interest payday loans and other abusive lending practices.

“North Carolina successfully drove out payday lenders charging loan shark interest rates that harmed working families,” said Attorney General Josh Stein. “These unfair loans are illegal in North Carolina, and I urge the FDIC not to allow payday and other abusive lenders from coming back to our state through the back door.”

The letter responds to a request for comments the FDIC issued in November about how FDIC-insured banks might meet consumer demand for small-dollar-amount lending and what the FDIC can do to help banks “offer responsible, prudently underwritten credit products.” The FDIC’s potential new guidance could alter or rescind previous 2013 guidance to banks that discouraged high-cost payday “deposit advance” lending by state-chartered banks. While state-chartered banks must obey the interest-rate laws of their own states, they generally are not bound by the interest-rate laws of other states. Therefore, the attorneys general fear that unscrupulous lenders could use state-chartered banks in states with weaker interest rate laws as fronts to offer predatory, high-interest loans across the country – a practice known as “rent-a-bank” payday lending.

Payday lending can trap lower-income people who don’t otherwise have access to consumer credit into endless cycles of debt. According to the Pew Charitable Trusts, the average payday loan borrower earns about $30,000 per year, and about 58 percent of borrowers have trouble meeting their monthly expenses. The average payday borrower is in debt for nearly half the year because they borrow repeatedly to help repay the original loan.

In the letter, the attorneys general request that any potential FDIC guidance to banks discourage banks from becoming fronts for rent-a-bank payday lending and develop clear rules and tests that help banks determine consumers’ ability to repay when making small-dollar loans. These tests should consider factors like the borrower’s monthly income, monthly expenses (including payments on other debts), ability to repay the loan in full at the end of the loan term without re-borrowing, and the possibility of unforeseen or emergency expenses.

Attorney General Stein is joined in filing today’s comments by the Attorneys General of the District of Columbia, California, Connecticut, Colorado, Illinois, Iowa, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, and Virginia.

A copy of the letter can be found here.