Pew Warns Senate Committee Against Re-emergence of Risky Bank Partnerships

Letter outlines dangers associated with ‘rent-a-bank’ arrangements

Pew Warns Senate Committee Against Risky Bank Partnerships

On April 27, The Pew Charitable Trusts sent a letter to the United States Senate Committee on Banking, Housing, and Urban Affairs to inform discussion during an April 28 hearing titled The Re-emergence of Rent-a-Bank? The letter drew upon Pew’s extensive research to explain how “rent-a-bank” relationships—a risky type of partnership among banks and third parties, typically nonbank financial institutions—can harm borrowers by enabling payday lenders to exploit the banks’ charters to originate high-cost loans that would otherwise violate state usury laws. 

Rent-a-bank partnerships can also add risk to the banking system because they make it possible for nonbank lenders to engage in banking operations outside the purview of federal bank regulations and supervision. Conversely, other types of third-party bank partnerships can be beneficial, helping to improve service for small-dollar borrowers by enabling banks to offer safe, small installment loans that are subject to federal oversight. Pew’s research shows that millions of Americans who use payday and similar high-cost loans could save billions of dollars annually if the nation’s banks were able to provide safer installment loans directly to their checking account customers.

In its letter, Pew urged the committee “to stop ‘rent-a-bank’ partnerships immediately, before they take root in our banking system, and to do so in a way that fosters more beneficial partnerships between banks and nonbanks.”

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