Payday lenders are exploiting loopholes to evade Maine’s consumer protection laws. Their shadowy practices are leaving Mainers in the lurch. Now, the Trump administration is floating a rule change that would let predatory corporations fleece families in the full light of day.
Because of its established history of abusive and unfair practices, Maine has established several limitations on the payday lending industry, such as caps on fees and interest rates, that provide some protection to Mainers.
However, companies such as OppLoans and EasyPay Finance are using a scheme known as “rent-a-bank” to evade Maine’s laws. Instead of lending to Mainers directly, these companies are seeking out banks in states without the same consumer protections in place. Outside the jurisdiction of Maine’s regulations, these banks go ahead and charge interest rates in excess of Maine’s lending cap.
The bank then turns around and sells its loan to the payday lender operating in Maine, which can claim the loan is not subject to Maine’s regulations and reap excess profits by skirting the law.
While there is no federal law against rent-a-bank schemes, the practice has existed in a legal gray area since 2013, when a court ruled against the practice. The ruling curbed the practice, but didn’t eliminate it entirely. Now, the federal Office of the Comptroller of the Currency has circulated a rule that would permit rent-a-bank outright.
Maine’s laws are effective in protecting consumers. Maine’s licensing bureau reports that licensed lenders are responsive and quick to resolve complaints and that it has been able to wipe out illegal interest charges and even recover funds from unauthorized transactions for scores of Maine consumers. Additionally, research shows that that state interest rate cap saves Maine’s consumer $25 million dollars annually. As a result, Maine borrowers pay less than half what borrowers in states with no rate cap pay for payday loans.
Maine’s laws are good but payday lenders continue to “game” the system, coming up with one scheme after another to evade strong state consumer laws. Consumers need the federal government to control this reckless, harmful industry, not roll out the red carpet to allow further scams.
Agencies charged with protecting consumers, such as the Consumer Finance Protection Bureau and the Office of the Comptroller of the Currency, aren’t doing their jobs. Congress needs to step in—enacting a federal interest rate cap and sensible regulations that prevent the myriad tactics perpetrated by payday lenders to evade state laws. They can’t act soon enough.