August 20, 2020
(RALEIGH) Attorney General Josh Stein today filed a lawsuit challenging the Federal Deposit Insurance Corporation’s (FDIC) final rule that exempts buyers of high-interest loans from state interest rate caps. These caps play a critical role in regulating payday loans and other high-cost lending throughout the states.
“I worked to drive payday lenders out of North Carolina years ago,” said Attorney General Josh Stein. “Their products drown working people in debt. I am going to court to prevent them from using federal loopholes to come back into our state to exploit North Carolina borrowers.”
Under existing federal law, federally insured state-chartered banks are exempt from state interest rate caps. The FDIC’s final rule extends these exemptions to any non-bank lender that buys loans originated by an exempt bank, allowing these non-bank lenders to far exceed the 30 percent interest rate limit under North Carolina’s Consumer Finance Act.
North Carolina’s interest rate limit is designed to protect North Carolinians from predatory lending by non-banks such as payday, auto title, and installment lenders. In January, Attorney General Stein won an $825,000 settlement against an out-of-state payday lender for violating North Carolina law, resulting in full refunds and outstanding loan cancellations for North Carolina consumers who received these loans.
Additionally, the final rule worsens the problem of rent-a-bank schemes, in which predatory lenders partner with banks that act as the lender in name only, allowing predatory lenders to evade state interest rate caps. The rule would be a win for lenders who are deliberately trying to evade state laws designed to protect consumers.
In the lawsuit, the coalition argues that the FDIC’s final rule conflicts with the Federal Deposit Insurance Act, exceeds the FDIC’s statutory authority, and violates the Administrative Procedure Act. Additionally, the lawsuit asserts that the FDIC failed to consider and address the negative effect that its final rule has on consumer financial protections by facilitating predatory rent-a-bank schemes. Attorney General Stein previously criticized the proposal in February.
Attorney General Stein is joined in filing today’s lawsuit by the Attorneys General of California, Illinois, New York, Massachusetts, Minnesota, New Jersey, and the District of Columbia.
A copy of the complaint is available here.