Twenty state attorneys general have formally requested federal regulators to reject proposed acquisitions of banks by high-cost nonbank lenders, arguing that these deals would facilitate predatory lending practices and expose consumers to significant financial harm. The coalition, led by Illinois Attorney General Kwame Raoul, has voiced strong opposition to two specific transactions: Opportunity Financial’s (OppFi) $130 million purchase of an Arizona-based bank and Enova’s $369 million acquisition of Grasshopper Bank.
Concerns Over Predatory Lending and Consumer Protection
In a strongly worded letter addressed to the heads of the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve, the attorneys general articulated their deep-seated concerns. They drew a historical parallel to the period preceding the 2008 financial crisis, recalling how state officials were among the first to identify the dangers posed by subprime mortgages, a foresight that ultimately proved accurate. "Now, we sound the alarm again," the letter states, emphasizing the urgency of their plea.
The attorneys general emphasized the significant power wielded by these regulatory bodies in determining who gains access to national banking privileges. They urged the regulators to deny such access to entities that have a documented history of attempting to circumvent state laws and disregarding consumer protections. The coalition comprises attorneys general from Arizona, California, Colorado, Connecticut, the District of Columbia, Hawaii, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington, in addition to Illinois.
A core tenet of the attorneys’ argument revolves around state-level usury laws, which nearly every state has enacted to cap interest rates on loans. Many of these caps are set at 36% for small loans and even lower for larger ones, reflecting a broad, bipartisan consensus on the need to prevent unaffordable lending. The attorneys general pointed out that both Enova and OppFi currently partner with banks chartered in states without such interest rate caps. This arrangement allows them to offer loans with interest rates significantly exceeding the 36% threshold common in other states.
"These arrangements are deliberate efforts to avoid state usury laws and to extract profit from those that are in desperate need of money," the letter asserts, characterizing these practices as exploitative. The attorneys general contend that allowing these high-cost lenders to acquire banks would effectively grant them a national charter, enabling them to export their high-interest rate models across the country and bypass state-specific consumer protections.
The Proposed Acquisitions Under Scrutiny
The specific transactions that have drawn the ire of the state attorneys general are:
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Opportunity Financial (OppFi) and its planned acquisition of an Arizona bank: OppFi, a prominent nonbank lender, has been in the process of acquiring a small bank in Arizona. This move is seen by critics as a strategic maneuver to leverage the bank charter for its lending operations. OppFi has faced scrutiny in the past for its high-interest loan products, often marketed to individuals with limited credit options.
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Enova and its acquisition of Grasshopper Bank: Enova, another significant player in the nonbank lending space, is seeking to acquire Grasshopper Bank. Enova also offers a range of loan products that critics argue carry excessively high interest rates. The acquisition of a federally chartered bank would provide Enova with greater regulatory latitude and potentially shield its business model from state-level oversight.
The attorneys general’s letter highlights the potential for these acquisitions to exacerbate the existing problem of predatory lending. By acquiring banks, these nonbank entities can operate under federal banking regulations, which may differ significantly from state consumer protection laws. This could create a situation where consumers nationwide are subjected to lending practices that are deemed unacceptable by a majority of state legislatures.
Responses from Lenders and Regulators
In response to the allegations, representatives for both OppFi and Enova defended their business practices and their proposed acquisitions.
An OppFi spokesperson stated that the company "currently serve[s] our customers with a highly compliant, legally robust, and consumer-friendly product." The spokesperson added that moving their model into a regulated banking infrastructure would "enable us to pair our proven product with extensive federal oversight, further strengthening our commitment to transparent and fair consumer lending." This suggests a belief that federal regulation, rather than state oversight, is the most appropriate framework for their operations.
Kirk Chartier, Enova’s Chief Strategy Officer, countered the attorneys general’s claims by highlighting a recent development in federal appellate court. He noted that "21 different state attorneys general recently filed an amicus brief in federal appellate court defending a state bank’s right to export home-state interest rates." This suggests a potential inconsistency in the positions taken by some state attorneys general. Chartier further emphasized that as a national bank, Enova "would operate under full federal banking agency supervision and consumer protections and in compliance with applicable federal and state laws and interagency lending guidance." This assertion implies that federal oversight would provide sufficient consumer protection.
The regulatory bodies—the OCC, FDIC, and the Fed—have yet to issue a formal statement on the attorneys general’s request. However, their decisions on these proposed acquisitions will have significant implications for the future of nonbank lending and consumer protection in the United States. The OCC, in particular, has been grappling with the evolving landscape of financial technology and its integration into the traditional banking system.
Broader Concerns Regarding Fintech and Bank Charters
Beyond the specific bank acquisition proposals, the attorneys general also broadened their concerns to include the OCC’s practice of granting national trust charters to cryptocurrency firms. They argue that such expansions risk amplifying instability within the financial system by embedding risky business models into its fabric, potentially triggering a "race to the bottom" in terms of regulatory standards. This sentiment is echoed by various bank trade groups, which have also expressed reservations about national trust charters being granted to cryptocurrency entities.
Comptroller of the Currency Jonathan Gould, in an interview with Banking Dive in October, acknowledged the complexities of regulating emerging financial technologies. He suggested that it is preferable for such activities to occur within the regulated banking system, where they can be observed and monitored, rather than operating in an unregulated space. Gould stated, "it’s better for it to be done within the banking system, if it’s legally permissible and can be done in a safe and sound manner, so that we can see it and monitor it, versus an ostrich approach, where we put our head in the sand and we’re not really observing what’s going on out there." This perspective suggests a regulatory approach that favors oversight of innovation rather than outright prohibition.
Implications for Consumers and the Financial System
The current standoff between state attorneys general and nonbank lenders seeking to acquire banks highlights a fundamental tension in financial regulation. On one hand, there is a drive to foster innovation and increase access to credit, particularly for underserved populations. On the other hand, there is a critical need to protect consumers from predatory practices and ensure the stability of the financial system.
The attorneys general’s arguments are rooted in the principle that state laws are designed to reflect the specific needs and values of their constituents, particularly concerning financial fairness. Allowing nonbank lenders to acquire banks and operate under a more permissive federal framework could undermine these state-level protections, leading to a national market where consumers in states with strong usury laws are still vulnerable to high-cost lending.
The outcomes of these proposed acquisitions will set important precedents for how regulators balance innovation with consumer protection. If the deals are approved, it could signal a shift towards a more unified, albeit potentially less protective, federal regulatory environment for certain types of lending. Conversely, if the regulators heed the attorneys general’s warnings, it could reinforce the role of state-level consumer protection laws and encourage a more cautious approach to integrating high-cost lenders into the traditional banking system.
The debate also touches upon the broader implications of fintech and the increasing convergence of technology-driven financial services with traditional banking. As nonbank lenders seek to acquire bank charters, the lines between these sectors blur, presenting complex challenges for regulators tasked with overseeing a rapidly evolving financial landscape. The concerns raised by the attorneys general are not merely about specific transactions but about the fundamental principles of fair lending and the integrity of the financial system in an era of rapid technological change. The decisions made by the OCC, FDIC, and the Fed in the coming months will undoubtedly shape the future of consumer finance in the United States.
