A Trump-era fintech backdoor for high-interest loans is under scrutiny

The Trump administration's "True Lender" rule allowed predatory lending by rent-a-banks, advocates say. Overturning it will create confusion for fintechs, the rule's backers argue. The House is set to review it.

​Sen. Sherrod Brown

Sen. Sherrod Brown is seeking reforms to banking rules that affect fintechs.

Photo: Tasos Katopodis/Getty Images

Members of Congress and consumer advocates are pushing for rollback of a Trump-era "True Lender" rule that supporters say has made consumer lending more competitive and critics say is just a new avenue for predatory lending.

For fintech lenders, much is at stake: The rule allowed bank-fintech partnerships, also known as marketplace lending arrangements, to flourish. A tighter regulatory regime may force some to rethink their product offerings or even their business models.

A House committee is expected to discuss the measure soon at a hearing. The measure recently passed the Senate.

At issue is an October rule change at the Office of the Comptroller of the Currency that clarified that a fintech company or other nonbank could partner with a chartered bank (the "true lender" in the rule) to make loans as long as the bank's name is on the loan agreement. That bright-line test is something the proposed rollback would eliminate — which would create more uncertainty on who the "true lender" is, some in the banking industry say.

The bright-line test under the OCC rule also meant that the banks and their fintech partners could lend at interest rates above a state's interest rate caps, advocates say. The banks, which are actually loaning the money, can do this by "exporting" interest rates from their home states, which is legal under the National Banking Act. (Forty-five states and D.C. have interest rate caps. The median interest rate cap for a two-year, $2,000 loan is 31% APR, according to the National Consumer Law Center.)

Advocates point to numerous examples of online lenders and others partnering with banks to offer interest rates above 100% APR, with some up to 200%.

"The rule says that as long as the bank's name is on the loan agreement, that triggers federal law that preempts state interest rate limits," said Lauren Saunders, associate director at the National Consumer Law Center.

In April, D.C. Attorney General Karl Racine sued OppFi, alleging that the startup charged interest rates of up to 198% and used deceptive marketing. D.C. has a 24% interest rate cap. Racine last year also sued Elevate, another online lender.

In New York, a restaurant owner borrowed $67,000 at a 268% APR from World Business Lenders and its bank partner Axos Bank of Nevada — one of the states without an interest rate cap.

Last year, online lenders Avant and Marlette settled with Colorado's attorney general in a suit that alleged they charged interest rates above the state's 36% cap. The companies, which had lended through banks WebBank and Cross River Bank, agreed to not lend above the state's 36% limit and to pay for Colorado consumer protection efforts and other education programs.

The debate over whether online lenders are actually banks is occurring as a parallel issue has arisen for another type of fintech — neobanks — which have been challenged on whether they can even call themselves banks. Chime recently had to drop the use of the word "bank" from its marketing after a settlement agreement with California regulators.

If this True Lender rule change passes, online lenders would not be able to use the OCC rule as a defense, potentially making it harder to offer these loans.

"The real consequence of not having a bright-line test is you are subject to a patchwork of judicial decisions," said Crystal Kaldjob, a partner at Morrison & Foerster. She believes that the Colorado settlement could become a model for how the issue is regulated in states.

The "true lender" change is being conflated with interest rates, said OppFi's Jared Kaplan. "Banks have a right to lend nationally based on their state domicile, full stop," he said. "This has nothing to do with rates. This has all to do with who is the lender in the transaction."

Banks also have similar relationships working with partners who are mortgage companies and personal and installment lenders, Kaplan said.

Asked about the D.C. case, he said, "We're incredibly confident in the way we work with banks. We look forward to a successful resolution there."

Kaplan doesn't expect the passage of the bill to affect OppFi, as the OCC will revert back to the pre-October way it defined a "true lender." He said OppFi's bank partners are in control of the loans: "No questions asked."

But OppFi offers an example of fintech business models that may come under scrutiny. Several days after its bank partners make the loans, OppFi acquires participation rights in those loans — meaning it buys a portion of profits in the loans.

How these deals are structured has often been a key part of how courts determine who the "true lender" is, said Kaldjob. Online lenders typically go out and find the customers and manage the relationship with the customer, though the bank is actually funding the loans.

Some courts view the bank as the "true lender," while others view the online lender as having "predominant economic interest" as the "true lender." The factors that determine this include:

  • Whether the nonbank pre-funds the loan, which essentially means the nonbank funds the loans;
  • The length of time that a bank holds the loan before selling it;
  • And whether the fintech buys some or all of the loan after a holding period.

The American Bankers Association and other banking groups oppose the bill, saying that using the Congressional Review Act to pass this replacement rule will make it harder to make changes later.

The White House supports the change and eight state attorneys general sued in January to overturn the rule.

House Financial Services committee chair Maxine Waters has expressed support for the bill. But some House Democrats are pushing back against it, according to the American Prospect.

Neither a true borrower nor a true lender be

The reason that fintechs like OppFi exist is that traditional banks aren't filling a massive need for these types of smaller, short-term loans for people with lower credit scores, Kaplan said. "Traditional banks rely on FICO credit score" to underwrite, he said. "They don't understand how to figure out creditworthiness based on alternative data techniques like cash flow."

OppFi is offering loans to people who can't get loans at a bank and would otherwise go to a payday lender, tribal lender or auto-title lender, which all charge much higher interest rates and hidden fees, Kaplan said.

Big banks generally don't want to do these smaller loans because they say they can't make money on them. However, U.S. Bank recently began offering small loans with an APR of about 70.7%.

The proposed lender-rule rollback does not address interest rates directly, its advocates acknowledge, but it makes sky-high interest rates harder to offer by addressing the definition of who the lender is in the fintech-bank relationship.

Actually changing the interest rate caps, or prohibiting exporting of interest rates, would require changing the National Banking Act, a big legislative lift. The proposed change more narrowly addresses the "true lender" rule. Sen. Sherrod Brown has said he plans to introduce a broader bill addressing interest rates.

"This rent-a-bank problem highlights the need for a national interest rate limit that includes banks," said NCLC's Saunders.

Musk’s texts reveal what tech’s most powerful people really want

From Jack Dorsey to Joe Rogan, Musk’s texts are chock-full of überpowerful people, bending a knee to Twitter’s once and (still maybe?) future king.

“Maybe Oprah would be interested in joining the Twitter board if my bid succeeds,” one text reads.

Photo illustration: Patrick Pleul/picture alliance via Getty Images; Protocol

Elon Musk’s text inbox is a rarefied space. It’s a place where tech’s wealthiest casually commit to spending billions of dollars with little more than a thumbs-up emoji and trade tips on how to rewrite the rules for how hundreds of millions of people around the world communicate.

Now, Musk’s ongoing legal battle with Twitter is giving the rest of us a fleeting glimpse into that world. The collection of Musk’s private texts that was made public this week is chock-full of tech power brokers. While the messages are meant to reveal something about Musk’s motivations — and they do — they also say a lot about how things get done and deals get made among some of the most powerful people in the world.

Keep Reading Show less
Issie Lapowsky

Issie Lapowsky ( @issielapowsky) is Protocol's chief correspondent, covering the intersection of technology, politics, and national affairs. She also oversees Protocol's fellowship program. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University's Center for Publishing on how tech giants have affected publishing.

Sponsored Content

Great products are built on strong patents

Experts say robust intellectual property protection is essential to ensure the long-term R&D required to innovate and maintain America's technology leadership.

Every great tech product that you rely on each day, from the smartphone in your pocket to your music streaming service and navigational system in the car, shares one important thing: part of its innovative design is protected by intellectual property (IP) laws.

From 5G to artificial intelligence, IP protection offers a powerful incentive for researchers to create ground-breaking products, and governmental leaders say its protection is an essential part of maintaining US technology leadership. To quote Secretary of Commerce Gina Raimondo: "intellectual property protection is vital for American innovation and entrepreneurship.”

Keep Reading Show less
James Daly
James Daly has a deep knowledge of creating brand voice identity, including understanding various audiences and targeting messaging accordingly. He enjoys commissioning, editing, writing, and business development, particularly in launching new ventures and building passionate audiences. Daly has led teams large and small to multiple awards and quantifiable success through a strategy built on teamwork, passion, fact-checking, intelligence, analytics, and audience growth while meeting budget goals and production deadlines in fast-paced environments. Daly is the Editorial Director of 2030 Media and a contributor at Wired.

Circle’s CEO: This is not the time to ‘go crazy’

Jeremy Allaire is leading the stablecoin powerhouse in a time of heightened regulation.

“It’s a complex environment. So every CEO and every board has to be a little bit cautious, because there’s a lot of uncertainty,” Circle CEO Jeremy Allaire told Protocol at Converge22.

Photo: Circle

Sitting solo on a San Francisco stage, Circle CEO Jeremy Allaire asked tennis superstar Serena Williams what it’s like to face “unrelenting skepticism.”

“What do you do when someone says you can’t do this?” Allaire asked the athlete turned VC, who was beaming into Circle’s Converge22 convention by video.

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at or via Google Voice at (925) 307-9342.


Is Salesforce still a growth company? Investors are skeptical

Salesforce is betting that customer data platform Genie and new Slack features can push the company to $50 billion in revenue by 2026. But investors are skeptical about the company’s ability to deliver.

Photo: Marlena Sloss/Bloomberg via Getty Images

Salesforce has long been enterprise tech’s golden child. The company said everything customers wanted to hear and did everything investors wanted to see: It produced robust, consistent growth from groundbreaking products combined with an aggressive M&A strategy and a cherished culture, all operating under the helm of a bombastic, but respected, CEO and team of well-coiffed executives.

Dreamforce is the embodiment of that success. Every year, alongside frustrating San Francisco residents, the over-the-top celebration serves as a battle cry to the enterprise software industry, reminding everyone that Marc Benioff’s mighty fiefdom is poised to expand even deeper into your corporate IT stack.

Keep Reading Show less
Joe Williams

Joe Williams is a writer-at-large at Protocol. He previously covered enterprise software for Protocol, Bloomberg and Business Insider. Joe can be reached at To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or


The US and EU are splitting on tech policy. That’s putting the web at risk.

A conversation with Cédric O, the former French minister of state for digital.

“With the difficulty of the U.S. in finding political agreement or political basis to legislate more, we are facing a risk of decoupling in the long term between the EU and the U.S.”

Photo: David Paul Morris/Bloomberg via Getty Images

Cédric O, France’s former minister of state for digital, has been an advocate of Europe’s approach to tech and at the forefront of the continent’s relations with U.S. giants. Protocol caught up with O last week at a conference in New York focusing on social media’s negative effects on society and the possibilities of blockchain-based protocols for alternative networks.

O said watching the U.S. lag in tech policy — even as some states pass their own measures and federal bills gain momentum — has made him worry about the EU and U.S. decoupling. While not as drastic as a disentangling of economic fortunes between the West and China, such a divergence, as O describes it, could still make it functionally impossible for companies to serve users on both sides of the Atlantic with the same product.

Keep Reading Show less
Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

Latest Stories