States Want FDIC Crackdown on Payday Lenders

May 17, 2005
Attorneys general from 37 states want the Federal Deposit Insurance Corporation (FDIC) to crack down on payday lenders who use FDIC banks as a way around state laws. The FDIC recently issued new guidelines aimed at restricting abusive lending practices but the attorneys general said the agency failed to address the issue of "charter renting" by payday lenders.

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Charter renting occurs when payday lenders make their loans through state-chartered banks located in another state to evade state regulation and enforcement in the state where the loans are being made.

"By allowing this practice ... the FDIC has encouraged a cynical subversion of state laws on the part of the payday lending industry and has interfered with the states’ rights to apply and enforce our consumer protection and lending laws," the attorneys general said in their letter to FDIC chairman Donald Powell.

Other federal banking regulators, notably the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), have already acted to curtail the practice of charter renting by the banking institutions they oversee.

But after the OCC and OTS prohibited federally-chartered institutions from renting their charters to payday lenders, the payday lenders simply moved on to relationships with state-chartered banks.

"We regret that unlike the OCC and OTS, the FDIC to date has declined to take effective action to prevent payday lenders from using its member banks to circumvent state law," the attorneys general said.

Far from helping to correct the situation, the FDIC has made it worse by failing to address charter renting, the state prosecutors said.

"FDIC guidelines have been used in the past to justify and codify this practice," the letter noted," their letter noted.

The letter was signed by the attorneys general of Alaska, American Samoa, Arizona, Arkansas, California, Colorado, Connecticut, District of Columbia, Idaho, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, Tennessee, Texas, Vermont, Washington, West Virginia, and Wisconsin.

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