Brighter Futures Begin with HOPE.

September 2, 2020

Acting Comptroller of the Currency
Brian Brooks
400 7th St SW
Washington, DC 20219

Re: Comments on Proposal “National Banks and Federal Savings Associations as Lenders” Docket ID: OCC-2020-0026 RIN 1557-AE97

Dear Chairman Brooks:

Please find below the comments of the Hope Enterprise Corporation / Hope Credit Union/Hope Policy Institute (HOPE) in response to the OCC Notice of Proposed Rulemaking, National Banks and Federal Savings Associations as Lenders, OCC-2020-0026, RIN-1557-AE97.

HOPE is a credit union, community development financial institution and policy institute that provides affordable financial services; leverages private, public and philanthropic resources; and engages in policy analysis to fulfill its mission of strengthening communities, building assets, and improving lives in economically distressed areas throughout Alabama, Arkansas, Louisiana, Mississippi and Tennessee. Over the last 25 years, HOPE has generated over $2.5 billion in financing that has benefited more than 1.5 million individuals.

Given the experiences of our members, described herein, we are concerned that the OCC proposal will add to, rather than relieve, the burdens of high-cost lending in our region. In all five Deep South states, high-cost lenders, such as payday and car title lenders, are already saturating our communities. For example, in 2017 in Tennessee, there were over 1,200 payday loan storefronts, more than McDonald’s and Walmart locations combined.¹ In terms of fees drained by payday and car title lenders, Mississippi, Alabama, Louisiana, and Tennessee are in the top ten states, and high-cost lenders drain more than $1.6 billion every year from low-income borrowers in these four states.²

These loans have been particularly harmful during the time of COVID-19, magnifying the financial crisis. HOPE members paid over $54,000 to rent-a-bank lenders in the last 90 days alone. This staggering amount shows the heavy burden of our members’ relationship with predatory lenders, particularly at a time when people are straining to make ends meet with reduced expenses and needing financial cushions to stay home to stay safe. This is particularly true for lower-income households in the Deep South, where in states like Mississippi, Alabama, Tennessee, and Louisiana more than half of households earning $35,000 have experienced income loss since the pandemic.³ For Black households, which are disproportionately targeted by predatory lenders, more than 1 in 2 in each of our Deep South states have similarly experienced loss of employment income. We have also seen how portions of people’s COVID financial relief, such as stimulus payments, has been shortened by portions of those funds going to payday lenders rather than basic needs.

Already, there is at least one high-cost lender in every state in the Deep South region making these loans via the bank partnership arrangement.  See Appendix. The OCC proposal increases the risks that more high-cost lenders will extract additional fees, aided by the willing assistance of partnering banks. We recognize that to date, these arrangements involve only FDIC-supervised banks. However, the OCC proposal may open the door for national banks to enter such partnerships as well.

The Proposal Exacerbates the Harms Experienced by HOPE’s Members

HOPE’s concerns about the harms of these loans are not hypothetical. HOPE members have been trapped by loans facilitated by rent-a-bank partnerships, putting their economic success in jeopardy and thus frustrating our mission to build wealth among low-income communities and communities of color in the Deep South. While rent-a-bank loans are hailed as accessible credit for the financially vulnerable, we know the opposite to be true. People are not being harmed by the absence of the loans supported by the OCC proposal; rather, it is the presence of additional high-loan cost loans that is the problem. If promulgated by this rule, the expansion of these high-cost loan products will further exacerbate the financial strain of low-income borrowers in the Deep South.

Over the course of just the past three months, 67 HOPE members had at least one loan from either Elastic, Rise, OppLoans, EasyPay Personify, or NetCredit via the rent-a-bank arrangement. This is a concerning number. People stuck in the rent-a-bank loans are people on fixed incomes receiving social security or disability benefits, veterans, students, teachers, and workers at hospitals, fast food places, and even payday loan shops.

From our members’ experiences, at least three key themes of harmful lending practices emerge:

• Despite claims to the contrary, rent-a-bank loans are going to people who already have credit. People with rent-a-bank loans have other types of consumer credit outstanding at the same time, often at much lower costs than those charged by rent-a-bank lenders. As one example of a frequent pattern, one borrower had several outstanding consumer loans and credit cards, in addition to the high-cost rent-a-bank loans.

• Rent-a-bank loans are deepening people’s financial burdens, not relieving them. Where a borrower has a rent-a-bank loan, the payments are in addition to existing outstanding debt, or in some cases contribute to the need to take out additional loans after receiving the rent-a-bank loan. For example, one of HOPE’s members, a disabled veteran on a fixed income, received a rent-a-bank loan in July 2019 with no previous high cost lending activities. By May 2020, not even a year later, he is now saddled with an additional six payday loans, owing over $1,000 in monthly payments. Between April 29, 2020, the day he received his $1,200 stimulus check, and May 1, 2020, five lenders extracted $1,004 with the original rent-a-bank lender extracting the largest payment. For another member, at the beginning of the year, the payments on four outstanding consumer loans, inclusive of a high-cost rent-a-bank loan, accounted for 32% of her monthly take home pay. By the end of the year, she was still making payments on all four debts plus two new additional loans, such that the payments now accounted for 60% of her monthly take home pay.

• There is a clear disregard for borrowers’ ability to repay. The disregard for borrowers’ ability to repay is evident in two ways. First, by the time a borrower receives a rent-a-bank loan, many times he or she has additional loans outstanding, including ones on which he or she was struggling to repay. One of HOPE’s members found herself in this situation. After missing two previous payments on an existing lower-cost consumer loan she received a high-cost rent-a-bank loan just days later. Second, there is evidence of clear patterns of repeat re-borrowing, both through repeated cycles throughout the year, and multiple refinances by a single lender over a short period of time. Another member of HOPE’s refinanced a loan originated by the same rent-a-bank lender twice within six-months of receiving the loan, with payments increasing each time. This cycle mirrors that which is so well-documented in the context of payday lending — where one finds it nearly impossible to both repay the loan and meet other monthly obligations without re-borrowing.

These harms are neither exclusive nor exhaustive. We hear first-hand from our members and people in the communities where our branches are located about the troubles caused by unaffordable high-cost loans, such as difficulty paying other bills, the psychological stress caused by unaffordable debt, and the subsequent inability to build wealth in the future.

Beyond HOPE members, research shows that high-cost loans, even when structured with longer-terms and over installments, can have devastating effects on people’s financial situation. Such harms are, in part, why the U.S. Department of Defense extended its 36% rate cap to cover high-cost installment loans, in addition to the short-term loans that were previously covered.⁴  Empirical data from states with high-cost installment loans similar to those being made in our region through these rent-a-bank partnerships still show troubling patterns of repeat re-borrowing and other burdens like difficulty meeting other obligations.⁵

The Proposal Puts State Law Consumer Protections at Risk

The OCC proposal will put at risk the consumer protections that currently exist in our region, particularly the 17% constitutional rate cap in Arkansas.⁶ The proposals encourage lenders to circumvent this rate cap which saves Arkansans $139 million a year in fees that would otherwise be drained by high-cost lenders.⁷ The benefits of Arkansas’s law are documented in a recent report about how borrowers are faring several years after the enforcement of the rate cap.⁸ As one person said, they are doing “[m]uch better financially. You don’t continue to repeat the vicious cycle.”⁹

Beyond Arkansas, other state law protections in our region are at risk, such as but not limited to, Louisiana’s rate cap for consumer installment loans.¹⁰ In recent years, payday lenders and high-cost lenders have made attempts to move legislation that would undue these caps in Arkansas and Louisiana, but thankfully, these efforts have failed to gather the support needed by the respective state legislatures to come to fruition. The OCC must not override the policy decisions of the states as it is doing with this proposal.

These devastating financial consequences of loans made via this rent-a-bank arrangements would be troubling for anyone, but they are particularly pronounced in the Deep South, where economic inequality is deeply entrenched and persistent poverty is prevalent. The five states of our region all have higher rates of unbanked and underbanked populations than the national average.¹¹ The high-cost loans that will occur through the OCC proposal will only serve to increase these rates as people are exposed to practices that ultimately damage their financial standing.

In light of these concerns, HOPE urges the OCC to withdraw its proposal.

Sincerely,

Calandra Davis
Policy Analyst, Hope Policy Institute