CFPB deputy director attacks ‘bank rental systems’ | Troutman pepper

In a keynote address to the Consumer Federation of America’s Consumer Assembly 2022, CFPB Deputy Director Zixta Martinez squarely took aim at “bank leasing programs” in some of the first (if not the first) such comments from a senior CFPB official. Historically, the CFPB has been limited to “true lender” litigation against participants in high-rate programs involving Native American tribal parties (not banks) already challenged by state authorities. We view Deputy Director Martinez’s comments as potentially signaling a broader pursuit of this theory by the CFPB.

In her remarks, Ms. Martinez referred to an increase in installment loans and lines of credit with lenders who supposedly “try to use [relationships with banks] to evade state interest rate caps and licensing laws by pretending that the bank, rather than the non-bank, is the lender. Notably, Ms. Martinez appears to have accepted the premise that the non-bank participant in these programs is the “true lender.”

Additionally, Ms Martinez went on to criticize the “unusually high default rates” on these loans, “which raise questions about whether their products fail borrowers.” This comment echoes the philosophy of the “mandatory underwriting provisions” of the CFPB rule on paydays, vehicle title, and certain high-rate installment loans (provisions revoked by the Trump-era CFPB) and UDAAP says the CFPB had previously asserted in cases involving ITT and Corinthian Colleges, which state attorneys general began creating soon after the subprime mortgage crisis.

Finally, Ms Martinez added, without specifying the nature or frequency of the complaints, that the CFPB database reveals “a series of other significant consumer protection problems with certain loans associated with banking partnerships”. She promised the CFA that “we are looking closely” at these partnerships.

We take Deputy Director Martinez’s speech to the CFA as an important indicator of CFPB priorities, and in particular, the shift in emphasis on criticism of rent-a-bank deals. These comments may suggest that the CFPB is poised to follow in the footsteps of state attorneys general and state financial services regulators in asserting “true lender” claims against non-bank parties in these relationships.

We will continue to closely monitor these developments and their implications for players in the consumer financial services industry, including lenders, service providers and banks.

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