Payday lenders have always straddled the line between necessary and exploitative. Cash advances might cover a medical emergency or help pay rent, but they can also come back to bite. Whether it's a multi-thousand-dollar loan or a hundred bucks, recurring fees and stratospheric interest rates can trap desperate borrowers in an endless cycle of debt.
So to protect residents from predatory lending, more than half of all states, including Florida, have imposed limits on interest rates for short-term and installment loans offered by payday lenders. Lately, however, a few profit-hungry installment lenders have found a way around these consumer protections — and Florida lawmakers aren't doing anything about it.
Using the convenience of breezy online applications, digital lenders Elevate Financial and OppLoans can put cash-strapped Floridians on the hook for three-digit interest rates on loans that can be paid off over the course of months or years, if ever. Whereas other payday companies in the Sunshine State are prohibited from charging more than 18 to 30 percent on installment loans, Elevate and OppLoans can charge anywhere from 99 to 160 percent in annual interest after fees are factored in, according to a recent report from the National Consumer Law Center (NCLC).
Consumer advocates have sounded the alarm on these lenders. Though small-dollar loans from companies such as Amscot come with their own set of risks, those loans must be paid back all at once and cannot exceed $1,000, making it less likely to plunge borrowers in a protracted spin cycle of missed payments and new debt. With frightening consistency, it's the big-dollar, long-term loans that consume borrowers, and online lenders post the highest default rates.
So how do Elevate and OppLoans get away with fleecing Floridians? By "renting" out-of-state banks. In these loan-laundering "rent-a-bank" schemes, lenders approve a loan and then send the borrower's information to a chartered bank, which is regulated under federal law and therefore exempt from state interest caps. The bank puts up the money, issues the funds to the borrower, and then sells the borrower's debt back to the payday lender at a slight premium.
With that simple chain of events, lenders such as Elevate and OppLoans can avoid state regulations, and their banking partners make a quick profit. It's a win-win for everyone except the borrower, who rarely reads the fine print.
The existence of rent-a-bank schemes in Florida is even more concerning considering the fact they were effectively killed through regulation nearly 15 years ago. In other words, the problem isn't due to a new legal loophole that legislators and regulators are struggling to catch up with — it's an age-old grift that's returned thanks to the deregulatory ambitions of the Trump administration.
Federal banking regulators are responsible for cracking down on most banks exploiting rent-a-bank loopholes, but as of late, those regulators have been doing everything but quashing them. Whereas regulators under the two previous presidential administrations might have threatened to yank the charter of any financial institution involved in a rent-a-bank scheme, regulators in the Trump era have been positively chummy toward banks funneling money for installment lenders, as well as the payday loan industry in general.
Notwithstanding federal indifference, there are still a few ways state officials might push back against rent-a-bank schemes, according to NCLC associate director Lauren Saunders. Florida lawmakers could draft legislation prohibiting lenders involved in such schemes from doing business in the state. Even without stronger laws on the books, the state attorney general's office could take payday lenders to court for violating Florida's laws, something the attorneys general in Colorado and Pennsylvania have done.
"Payday lenders have stayed away from states where they think they're going to run into a fight," Saunders says. "No one is doing this in, say, New York, where the attorney general will aggressively enforce the state's [interest] laws. Lenders are trying this in states where they think they can get away with it."
For the time being, Florida seems to be one place where lenders can have free rein. In January, a coalition of attorneys general from 14 states and the District of Columbia wrote a letter to the FDIC urging regulators to "discourage a revival of the rent-a-bank schemes that cropped up in the early 2000s." Florida Attorney General Ashley Moody did not sign the letter, nor did she add her name to a list of 16 attorneys general pressuring federal regulators last December to crack down on another scheme used by predatory lenders.
"I've not seen [Moody] get involved in consumer protection to the level that payday rip-off loan companies would be afraid to do business in Florida," says Lynn Drysdale, a consumer protection attorney for the nonprofit law firm Jacksonville Area Legal Aid Inc.
In response to a New Times inquiry regarding rent-a-bank schemes in Florida, a spokesperson for Moody said her staff would look into the matter "to see if any of the issues fall within our office's jurisdiction."
So just how bad are rent-a-bank schemes in Florida? It's diffucult to say. Unlike most payday lenders, which are highly regulated and required to report activity to state officials, rent-a-bank lenders such as OppLoans and Elevate are exempt from those reporting requirements, says Alice Vickers, director of the Florida Alliance for Consumer Protection.
According to the Florida Office of Financial Regulation, no complaints have been filed against OppLoans or Elevate. However, Vickers argues that consumer complaints are an incomplete metric because word of many issues with payday lenders never make it to state officials.
"In my mind, you don't even need consumer complaints to start acting. You need to ask why it is that our state government is allowing these loans in the first place," Vickers says.
In recent years, Florida lawmakers have actually made things easier, not harder, for the payday lending industry. In 2018, Gov. Rick Scott signed into law a bill that allows lenders to make larger short-term loans, from $500 to $1,000, which consumer advocates say increases the possibility that borrowers will get behind on payments and be subjected to fees and crippling interest rates. The bill did not affect online lenders such as OppLoans or Elevate because they are installment lenders.