CUNA concerned with ‘rent-a-bank’ trend, ‘true lender’ proposal

April 28, 2021

CUNA supports oversight of financial technology companies, it wrote Wednesday to the Senate Banking, Housing, and Urban Affairs Committee. The committee conducted a hearing on so-called “rent-a-bank” relationships, and CUNA believes the committee should examine the legal framework and regulatory scope governing the oversight of traditional banks and other commercial businesses that are engaged in financial activity.

“Credit unions are concerned that non-regulated companies are engaged in financial activities through partnerships with regulated financial institutions allowing them to offer products and services that are traditionally offered by credit unions and banks, but without the regulatory safeguards that these non-financial service companies would be subject to if they were a financial institution,” the letter reads. “These so called ‘rent-a-bank relationships’ allow non-bank providers to operate under the cloak of a regulated entity will avoid regulations that would normally be in place, often from the state level, for the products and services they offer.”

CUNA cited its opposition to a proposed “payment charter” from the Office of the Comptroller of the Currency, as well as its opposition to any changes to the national bank charter that would lead to entities offering financial services but subject to less regulation and providing less consumer protection.

“We believe the OCC should undertake an open and transparent process in considering new types of charters or even approving what appears to be traditional charters that fundamentally alter the banking landscape without full consideration of the impact on consumers and other stakeholders,” the letter reads. “This process was followed with the notice and comment rulemaking process for the fintech charter but has not been done with payments charter.

“We continue to have serious concerns with banks partnering with fintechs for lending, especially when these relationships seem designed to avoid consumer protection laws,” it adds.

CUNA also has significant concerns with the OCC’s “true lender” proposal, under which a national bank would be considered the true lender of the loan if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan.

“CUNA has significant concerns with the “true lender” proposal as it could be exploited to promote ‘rent-a-charter’ arrangements between payday lenders and national banks, which can be used to evade state restrictions on high interest rates or loan terms,” the letter reads. “We believe the OCC’s final rule is not in the best interest of consumers and should be withdrawn. Instead, the OCC, in coordination with its sister banking regulators, should focus its relief efforts on facilitating and promoting the fair and reasonable loan options that are offered by local-community based lenders like credit unions.”