FDIC's acting chief lays out priorities as advocates demand action

Dive Brief:

A coalition of 15 consumer groups wrote a letter Friday to the Federal Deposit Insurance Corp. (FDIC), pressing the agency to crack down on partnerships between fintechs and banks that allow excessive interest rates.
The letter came on the day the regulator's Trump-appointed chair, Jelena McWilliams, stepped down and Democrat Martin Gruenberg took over in an acting capacity.
Gruenberg on Monday laid out a set of priorities for the agency to focus on throughout 2022.

Dive Insight:

Fintech lenders are sidestepping interest rate ceilings by partnering with FDIC-supervised banks chartered in states with relatively lax cap rules, saddling borrowers with annual percentage rates as high as 225%, the consumer advocacy groups wrote Friday.

“The FDIC appears to have done nothing to curtail the predatory lending that has exploded on its watch,” organizations including the National Community Reinvestment Coalition (NCRC), the NAACP and the Center for Responsible Lending wrote.

The groups expressed hope that that would change with a Democrat leading the agency.

In contrast to the FDIC, the Office of the Comptroller of the Currency (OCC) acted to stop two banks from offering high-cost installment loans even before Congress overturned the agency’s Trump-era “true lender” rule, which protected "rent-a-bank" partnerships, the groups said. The letter was also addressed to Michael Hsu, the OCC's acting chair and a board member at the FDIC.

“Rent-a-bank schemes have flourished at FDIC banks in the past few years and it is time for that to come to an end," the groups wrote, noting that 42 states and Washington, D.C., have caps below 100% for a $2,000, two-year installment loan. "The FDIC has the tools that it needs to prevent its banks from fronting for predatory lenders that are evading state law and making grossly high-cost installment loans.”

The letter named six “rogue banks” fronting for nonbank consumer lenders: Kentucky-chartered Republic Bank, Missouri-chartered Lead Bank and four banks chartered in Utah: FinWise Bank, Capital Community Bank, First Electronic Bank and Transportation Alliance Bank.

“For all loans we issue, we ensure compliance with the law, provide transparent rates and pay close attention to the activities of our service providers and any complaints we receive regarding our business activities or the loan products we offer,” First Electronic Bank responded in a statement to Bloomberg.

As consumer groups are urging the FDIC for action, at least one banking trade group seeks the opposite. The Consumer Bankers Association (CBA) is asking the agency to hold off on passing any new rules or regulations “until a board member representing the views of the minority party is seated."

5 priorities

The regulator's acting chair, meanwhile, rattled off a list of five priorities for the coming year: the Community Reinvestment Act; climate change; the Bank Merger Act; crypto-assets; and the Basel III capital rule.

Gruenberg stressed the CRA reform as the agency’s top priority. The OCC issued a final rule in 2020 to revamp the 1977 law that counters redlining, but it did so without the backing of the Fed or the FDIC. When Hsu took the OCC’s helm, the agency rescinded that rule, months after pledging to issue joint guidance alongside the Fed and the FDIC.

Gruenberg also pushed for a “careful interagency review of the bank merger process” — a prospect that revealed a divide within the FDIC that precipitated the resignation of his predecessor, Jelena McWilliams.

The FDIC will also seek public comment on guidance designed to help banks manage climate-change risks and establish a working group to that end, Gruenberg said. He also committed the agency to joining the Network for Greening the Financial System.

Further, Gruenberg pledged to implement revision to capital rules recommended by the Basel committee, and advised regulators “to provide robust guidance … on the management” of risks associated with crypto assets.

"All of these priorities will require close collaboration among the federal banking agencies," Gruenberg said in a statement Monday, reinforcing that banking supervision "encompasses safety and soundness and consumer protection, both of which are essential to this important mission."