The CFPB machine-guns the rent-a-banks

Hello and welcome to Protocol Fintech. This Monday: the CFPB against rent-a-banks, Binance’s real deal flow and Goldman’s Celsius movement.

out of the chain

Friday was a tough day to find fintech stories on social media. There was bigger news. But I was able to find some silence scrolling through the Twitter lists I created to follow crypto. There, people were still arguing over regulations, new use cases, and memes — not Supreme Court announcements. I say people, but when I looked at who was on my lists, I realized it was almost exclusively men.

— Veronica Irwin (E-mail | Twitter)

A new competitor enters the bank leasing fray

Consumer groups pushing bank regulators to crack down on so-called bank lease loans for personal loans may have found a willing watchdog. Zixta Martinez, deputy director of the Consumer Financial Protection Bureau, said during a recent consumer group conference that the agency is looking closely at lending partnerships between banks and non-banks, which are often fintech companies.

“Some lenders employing bank leasing systems have unusually high default rates, raising questions about whether their products put borrowers out of business,” Martinez said at the Consumer Federation of America meeting. of June 15. “And our complaints database reveals a range of other significant consumer protection issues with certain loans associated with banking partnerships.”

Rent-a-bank partnerships are increasingly studied. Note that industry promoters would prefer you to say “market loan agreements”.

  • Whatever you call them, consumer advocacy groups say lenders are wrongly avoiding state interest rate caps and offering loans with annual interest rates sometimes exceeding 100%.
  • “Most states have interest rate limits that apply to certain types of loans, but they generally don’t apply to banks” due to exemptions for federally regulated institutions, Lauren Saunders said. , associate director at the National Consumer Law Center. “So a few predatory lenders are trying to evade state interest rate limits by laundering their loans through a bank.” The NCLC believes that the non-bank should be considered the lender and held to rate caps in the state it lends, regardless of where the partner bank is located.
  • The CLB identified nine companies in partnership with six federally regulated banks to distribute loans at rates above 100% in states prohibiting such interest. All but seven US states have laws capping interest rates on personal installment loans, generally no more than 40%according to NCLC.

This controversy may sound familiar. That’s because Congress last year took action against this kind of lending relationship, voting in June 2021 to rescind the Office of the Comptroller of the Currency’s true lender rule.

  • This provision, enacted in the final months of the Trump administration, stipulated that any bank that signs a loan document should be considered its true lender for regulatory purposes, even if the loan is serviced by or sold to a low-rate lender. of high interest.
  • Its repeal did not outright ban such arrangements, but consumer groups say it led the OCC to take a tougher stance on partnerships.

The CFPB could bring a fresh look to space. Part of the CFPB’s mandate is to investigate unfair, deceptive or abusive acts or practices. The agency in March updated its internal guidelines to examine unfair practices.

  • “They can look at things like, how much revenue is generated from this?” said Stefanie Jackman, partner at Troutman Pepper. “How is it divided between the bank and the non-bank? What other things do non-banks do? »
  • The CFPB has taken a more aggressive stance towards banking and the fintech industry under the leadership of Rohit Chopra, who was confirmed in the role in October.

“What’s clear is that regulators are interested in this model,” Jackman said. “This is an important time for the industry to help regulators understand what types of financial products it facilitates and how these are needed.” The CFPB’s scrutiny could bring new regulatory power to a deal that has allowed some fintech lenders to grow and, according to the industry, serve customers overlooked by traditional creditors. Consumer advocates counter that such access comes with onerous conditions.

—Ryan Defenbaugh (E-mail | Twitter)

A version of this story first appeared on Protocol.com. Read it here.

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on the money

On protocol: Goldman Sachs is aiming to raise $2 billion to recover Celsius Network’s assets in the event of bankruptcy. Several major crypto hedge funds, loan companies, and brokerages are looking to shore up their finances in the wake of the stock market crash.

Miners are struggling to repay loans secured by crypto mining equipment. Some Crypto Miners Find It hard repay up to $4 billion in loans secured by their mining equipment as the value of mining rigs has halved.

Bitpanda has laid off a third of its staff. The crypto trading service announcement in a blog post on Friday, it was cutting its workforce by about a third to 730 people, as well as canceling job offers.

FTX is in talks to acquire part of BlockFi. After securing a $250 million revolving line of credit for the crypto lender earlier last week, FTX is taking it a step further and is in talks to to acquire a stake in the company.

Harmony’s Horizon Bridge was tapped, resulting in a loss of $100 million. The hacker would have shipped tokens from the bridge in 11 transactions, then sent tokens to another wallet to exchange them for ether on the Uniswap exchange.

Understood

Binance CEO Changpeng Zhao iclarifies the number of deal proposals received by the crypto exchange, which is 50-100, not 5,200. “Telephone Game” Zhao said on Twitter, adding that “even CMC reposted the ‘new,'” referring to the CoinMarketCap site owned by Binance.

Singapore’s crypto watchdog, the Monetary Authority of Singaporehasn’t been really crypto-friendly in its licensing requirements, but Chief Fintech Officer Sopnendu Mohanty don’t see why it has to be so. “Friendly for what? Friend for a real economy or friend for an unreal economy? » he Told the Financial Times.

Klarna is not satisfied with the last Barclays and Stage change report on “buy now, pay later”, which called for increased retailer support for BNPL-regulated products. “It is mind boggling and frankly irresponsible in a cost of living crisis that Barclays is using StepChange to endorse its high cost installment credit product,” Klarna UK Director Alex Marsh said.

Coming

The Payments Summit Europe 2022 conference starts on Tuesday. Both days conference will be held at the Leonardo Royal London Tower Bridge in the UK and will feature speakers from the Bank of England, Citi, Klarna and others.

The U.S. House Committee on Financial Services has a hearing on Thursday. The virtual audiencetitled “Combating Tech Bro Culture: Understanding Barriers to Diverse-Owned Fintech Investments,” begins at 12 p.m. ET.

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Efficient by design: SDF has an ongoing Carbon Dioxide Removal (CDR) commitment in place. Working with the Stellar ecosystem, we will pay for the removal of carbon emitted from the network annually and retroactively pay for the removal of the network’s historical carbon footprint since launch.

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Thanks for reading – see you tomorrow!

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