Rohit Chopra, Commissioner, Federal Trade Commission, USA; Young Global Leader speaking in Safeguarding Digital Spaces session at the World Economic Forum Annual Meeting 2020 in Davos-Klosters, Switzerland, 23 January. Congress Centre - Sanada. Copyright by World Economic Forum / Valeriano Di Domenico
Photo: Valeriano Di Domenico/World Economic Forum

The CFPB is gunning for rent-a-banks

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Monday: the CFPB vs. rent-a-banks, Binance’s real deal flow and Goldman’s Celsius move.

Off the chain

Friday was a difficult day to find fintech stories on social media. There was bigger news. But I was able to find a little bit of quiet scrolling the Twitter lists I've made for keeping up with crypto. There, people were still arguing over regulation, new use cases and memes — not announcements from the Supreme Court. I say people, but when I looked over who was on my lists, I realized they were almost exclusively men.

— Veronica Irwin (email | twitter)

A new contender enters the rent-a-bank fray

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

"Some lenders employing rent-a-bank schemes have unusually high default rates, which raise questions about whether their products set borrowers up for failure," Martinez said at the June 15 Consumer Federation of America’s assembly. "And our complaints database reveals a range of other significant consumer protection concerns with certain loans associated with bank partnerships.”

Rent-a-bank partnerships are getting a closer look. Mind you, industry proponents would rather you say “marketplace lending arrangements.”

  • Whatever you call them, consumer advocacy groups say lenders are wrongly dodging 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” because of exemptions for institutions under federal supervision, said Lauren Saunders, 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 the nonbank should be considered the lender and held to the rate caps in the state it is lending, regardless of where the partner bank is located.
  • The NCLC has identified nine companies partnered with six federally-supervised banks to distribute loans at rates that exceed 100% in states outlawing such interest. All but seven U.S. states have laws capping interest rates on personal installment loans, typically at no more than 40%, according to NCLC.

This controversy might sound familiar. That’s because Congress last year took action against this type of lending relationship, voting in June 2021 to overturn the Office of the Comptroller of the Currency’s True Lender rule.

  • That provision, passed in the final months of the Trump administration, said 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 high-interest lender.
  • Its repeal did not outright ban such arrangements, but consumer groups say it led to the OCC taking a stricter stance on the partnerships.

The CFPB could bring fresh eyes to the space. Part of CFPB’s mandate is to investigate unfair, deceptive or abusive acts or practices. The agency in March updated its internal guidance for examining practices for unfairness.

  • “They may look at things like: How much revenue is being generated off this?” said Stefanie Jackman, a partner at Troutman Pepper. “How is that shared between the bank and the nonbank? What other things are the nonbanks doing?”
  • The CFPB has taken a more aggressive stance toward banking and the fintech industry under director Rohit Chopra, who was confirmed to the role in October.

“What is 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 this facilitates and how those are needed.” The CFPB’s scrutiny could bring fresh regulatory firepower to an arrangement that has allowed some fintech lenders to grow and, as the industry sees it, serve customers overlooked by traditional creditors. Consumer advocates counter that such access comes with onerous terms.

— Ryan Deffenbaugh (email | twitter)

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


Efficient by design: We wanted to understand how Stellar compares to other blockchains and the legacy financial system. But as we tried to gather information on what was publicly available, there was little to be found. Rigorously-tested data and research from the blockchain and traditional finance industries as a whole is lacking and not easy to come by.

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On the money

On Protocol: Goldman Sachs is aiming to raise $2 billion to scoop up the Celsius Network’s assets in the event of bankruptcy. Several large crypto hedge funds, lending companies and brokerages are seeking to shore up their finances in the wake of the market’s crash.

Miners are having trouble paying back loans backed by crypto-mining equipment. Some crypto miners are finding it difficult to pay back up to $4 billion in loans backed by their mining equipment, as the value of mining rigs has dropped by half.

Bitpanda laid off one-third of its staff. The crypto trading service announced in a blog post on Friday that it was cutting headcount by roughly a third to 730 people, as well as rescinding job offers.

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

Harmony's Horizon bridge was exploited, resulting in a $100 million loss. The hacker allegedly sent tokens from the bridge in 11 transactions, then sent tokens to a different wallet to swap for ether on the Uniswap exchange.


Binance CEO Changpeng Zhao is clearing the air about how many deal proposals the crypto exchange received, which is 50 to 100, not 5,200. “Game of telephone,” Zhao said on Twitter, adding that “even CMC reposted the 'news,'" referring to the Binance-owned CoinMarketCap site.

Singapore’s crypto watchdog, the Monetary Authority of Singapore, hasn’t been really crypto-friendly in its licensing requirements, but Chief Fintech Officer Sopnendu Mohanty doesn’t see why it has to be. “Friendly for what? Friendly for a real economy or friendly for some unreal economy?” he told the Financial Times.

Klarna isn’t happy with the latest Barclays and StepChange report on “buy now, pay later,” which called for more retailer support for regulated BNPL products. “It is mind-boggling and frankly irresponsible in a cost of living crisis, that Barclays should use StepChange to endorse their high-cost installment credit product,” head of Klarna U.K. Alex Marsh said.

Coming up

The Payments Summit Europe 2022 conference starts Tuesday. The two-day conference will be held at the Leonardo Royal London Tower Bridge in the U.K., and will feature speakers from the Bank of England, Citi, Klarna and others.

The U.S. House Committee on Financial Services has a hearing Thursday. The virtual hearing, titled “Combatting Tech Bro Culture: Understanding Obstacles to Investments in Diverse-Owned Fintechs,” starts at 12 p.m. ET.


Efficient by design: SDF has established an ongoing Carbon Dioxide Removal (CDR) commitment. Together with the Stellar ecosystem, we will pay for removal of carbon emitted by the network every year, and are retroactively paying for the removal of the historical carbon footprint of the network since launch.

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Thanks for reading — see you tomorrow!

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