States challenge FDIC interest-rate cap rule

In response to a rule allowing non-bank lenders to avoid interest rate caps, California Attorney General Xavier Becerra filed a lawsuit against the Federal Deposit Insurance Corporation on behalf of California, Illinois, Massachusetts, Minnesota, New Jersey, New York, North Carolina and the District of Columbia.

Federally insured, state-chartered banks aren’t traditionally subject to interest rate caps, which are imposed to protect consumers from exorbitant interest rates. On June 25, the FDIC voted to expand the exemption to any lender, including nonbanks, that buys an FDIC loan.

“This provision of the rule is beyond the FDIC’s power to issue, is contrary to statute, and would facilitate predatory lending through sham ‘rent-a-bank’ partnerships designed to evade the law,” Becerra said in the federal overreach lawsuit.