Despite Arizona voters defeating a well-funded effort in 2008 to allow small-dollar loans to exceed our state’s interest rate cap of 36% plus fees, a persistent group of online high-cost lenders never lost their appetite for trapping cash-strapped Arizonans in debt.
Enter rogue, out-of-state banks not subject to state rate caps. The most audacious predatory lenders are now employing a “rent-a-bank” scheme whereby the lender charges and collects interest on a loan but a bank’s name is on the paperwork. The predatory lender claims the loan is a bank loan exempt from state law, leaving consumers and small business owners on the hook for 225% APR loans.
While the legality of this loan laundering scheme is in question, last year the Office of the Comptroller of the Currency, the national bank regulator, approved a “fake lender” rule that would overturn 200 years of case law allowing courts to follow the money. But the Senate recently introduced a resolution under the Congressional Review Act to overturn it.
Sens. Sinema and Kelly should back the resolution to overturn the “fake lender” rule.
Arizona has real rate caps that protect real consumers from the very real consequences of predatory payday lending.
Cynthia Zwick Executive Director, Wildfire
Kelly Griffith Executive Director, Center for Economic Integrity
