Community Reinvestment Act

Advocates Urge FinWise Bank FDIC Downgrade for Predatory Lending

 A coalition of consumer advocates have submitted a letter to the Federal Deposit Insurance Corporation (FDIC) calling for the downgrade of the Bank because of Community Reinvestment Act (CRA) violations. They argue that FinWise Bank’s lending through American First Finance, Elevate, and Opportunity Financial (OppFi), offering loans at up to 160% APR, "raises serious consumer protection issues and fails to meet the convenience and needs of the communities it serves." Under FDIC rules, banks are responsible for risks arising from third-party relationships to the same extent as if the activity were handled by the bank.

The advocates’ comments pointed out that American First Finance has twice as many complaints to the Consumer Financial Protection Bureau (CFPB) as EasyPay, whose partner Transportation Alliance Bank was downgraded by the FDIC in early 2023 because or deceptive acts/practices by a partner, probably EasyPay Finance. FinWise Bank’s partner American First Finance operates similar to EasyPay Finance, providing predatory puppy loans and other deceptive, high-cost loans through retail stores for pets, furniture, auto repairs, and appliances.

Two of FinWise Bank’s other rent-a-bank lenders, Elevate and OppFi, have rates significantly over 50% for charge-offs, a measure of debts unlikely to be collected, showing high-rates of default and the predatory nature of their loans. FinWise Bank, chartered in Utah and FDIC supervised, is one of only a few rogue banks that front for predatory lenders. Most states have interest rate limits to stop predatory lending, but predatory lenders try to evade state laws by laundering their loans through banks, which are exempt from state rate caps.

The advocates submitted public comments evidenced how FinWise Bank partners American First Finance, Elevate, and OppFi have generated hundreds if not thousands of complaints to the Consumer Financial Protection Bureau (CFPB) about: (1) Deception and unaffordable interest rates on loans that borrowers are unable to repay; (2) Receiving loans that they never applied for and identity theft; (3) Improper debt collection tactics, including collecting debt not owed, failure to validate debts, harassment, and abuse; and (4) Credit reporting problems, including incorrect information and failure to respond to disputes and errors.

The letter was signed by Accountable.US, Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Federation of America, National Community Reinvestment Coalition, NCLC (on behalf of our low-income clients), Public Citizen, U.S. PIRG, and Woodstock Institute.

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Read the March 15, 2023 Consumer Federation of America release.

Federal Reserve Proposes New Rules to Modernize CRA Regulatory Rules

On May 5, 2022, the Federal banking regulators - the Board of Governors of the Federal Reserve Board - announced proposed rules to revise and modernize the Community Reinvestment Act (CRA). The major elements are:

• Expanded access to credit, investment, and basic banking services in low- and moderate-income communities. The regulatory agencies would evaluate bank performance across the various activities they conduct and communities they regulate so that CRA is a strong, effective tool to reduce inequities in credit access. This involves the promotion of community engagement and financial inclusion, as well as emphasizing smaller-value loans and investments to have high impact and be more responsive to the needs of low and moderate-incoime (LMI) communities.
• Adaption to changes in the banking industry, including internet and mobile banking. The updating of CRA assessment areas to include activities like online and mobile banking, branchless banking, and other types.
• Providing greater clarity, consistency, and transparency. The adoption of a metrics-based approach to CRA evaluations of retail lending and community development financing including public benchmarks, to strengthen clarity and consistency. Also involved in the clarification of eligible CRA activities (e.g., affordable housing) focused on LMI, underserved, and rural communities.
• Tailoring CRA evaluations and data collection to bank size and type. In light of the differences in bank size and business types, smaller banks would continue being evaluated under the existing CRA regulatory rules, but have the option to be evaluated under the new proposed rules.
• Maintaining a unified approach. This rules proposal is the result of a unified effort by the bank regulatory agencies as well as inclusion of feedback from stakeholders.

In response to the proposed rules, the president of the Center for Responsible Lending (CRL) commented:

Federal banking regulators today issued a notice of proposed rulemaking to modernize the rules that implement the Community Reinvestment Act (CRA). This represents a significant step forward in ensuring that financial institutions address the credit needs of Asian, Black, Latino, Native American, rural and other underserved communities. The Federal Reserve Board and the Federal Deposit Insurance Corporation both unanimously approved the proposal, and they were joined by Michael Shu, Acting Comptroller of the OCC.

Low-income communities and people of color continue to be underserved by the nation’s financial system when seeking a wide range of financial services, whether for mortgages, automobile financing, or small business lending. Previous policies helped create today’s racial wealth gap by allowing lenders to use abusive and predatory lending practices for systemic exploitation and exclusion of these borrowers.

When 98 percent of US financial institutions receive passing scores in their CRA evaluations, yet the racial wealth and homeownership gaps are the same, if not wider, than they were 50 years ago, it is not enough for regulators to just tell financial institutions to ‘do better.’

The proposed rule both increases the effectiveness of CRA and enhances its implementation and compliance for banks. We look forward to working with regulators to further improve the rule as it goes through review and final adoption.

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Source: https://www.responsiblelending.org/media/bank-regulators-proposal-modernize-cra-rules. 

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220505a.htm.