UTAH (ABC4) – With the Federal Deposit Insurance Corporation (FDIC) under new leadership and following a departure from the corporation’s chair on Friday, advocates are calling for the FDIC to stop certain Utah banks from “fronting for predatory lenders.”

The four banks in Utah are FinWise Bank, Capital Community Bank, First Electronic Bank and Transportation Alliance Bank. The letter by advocates also cites Republic Bank & Trust of Kentucky and Lead Bank of Missouri. Each of the six banks schemes are presented in the letter.

The coalition of consumer and civil rights organizations are calling for the FDIC to “stop permitting its supervised institutions to front for predatory lenders evading state interest rate limits.”

The interest rates that these organizations are calling an end to can enable loans that can run up to 225% APR, a press release states.

The groups call these “rent-a-bank” schemes and claim that they are exploiting financially vulnerable families.

The letter which was addressed to the FDIC’s Board of Directors calls for a crackdown on “six rogue banks,” including the four in Utah.

According to the letter, those banks are “fronting for high-cost non-bank consumer lenders, enabling loans up to 225% APR that is illegal for the non-bank lender to make directly. In a rent-a-bank scheme, a company that isn’t a bank runs a lending program and takes most of the profit, that a bank nominally approves and intitally funds- placing its name on the loans. This arrangement helps the true lender (the nonbank company) evade state interest rate limits, which does not apply to banks.”

Advocates say in the letter that “these rent-a-bank schemes often operate under the guise of innovative “fintech” products, even as their high-cost, high-default business model inflicts harms similar to those inflicted by traditional payday lenders.”

The advocates also point to President Joe Biden’s pledge to no longer allow the schemes a bipartisan vote in Congress disapproving them, broad bipartisan opposition to evasion of state rate, recent action from the Office of the Comptroller of the Currency to stop rent-a-bank lending, and numerous reasons why the FDIC as a bank watchdog has a responsibility to shut down these illegal operations.

“Two decades ago, the FDIC, along with the other bank regulators, used its supervisory and enforcement powers to stop banks from helping short-term payday lenders evade the law,” the letter explains. “It is now time for the FDIC to put an end to modern predatory rent-a-bank schemes involving longer-term loans that are an even bigger, deeper debt trap.” 

The letter also states that these triple digit installment loans are illegal in almost every state – Utah does not have a rate cap.