American Banker, February 13, 2018: American Banker: BankThink Bill to address Madden ruling would be nightmare for consumers
A vote is expected imminently in the House on the so-called “Madden” bill, which, if it becomes law would spread predatory triple-digit loans, like a virus, to every state in America. The legislation would ensnare borrowers in financially devastating debt traps.
The bill states that if a loan interest rate is valid at the moment of origination, then it remains valid when the loan is transferred. The bill would thus facilitate “rent-a-bank” schemes whereby non-banks, such as payday, installment loan or credit card companies, form a superficial partnership with a bank in order to piggyback off bank preemption of state usury laws and charge triple-digit interest rates well in excess of state rate caps. At the same time, these non-bank entities are not bound by the regulatory regimes banks must abide by — they get to have their cake and eat it too.
The House bill and its companion in the Senate are sold as a fix to a federal court’s decision in Madden v. Midland, which reaffirmed the illegality of this type of transfer. Instead of fixing anything, these bills would break apart crucial state consumer protection laws.
Even if they’re dressed up in an “app” or on a stylish website, the fact remains that high-interest predatory loans trap borrowers in a cycle of debt. They increase the likelihood of delinquency on other bills, involuntary bank account closures, delayed medical care and bankruptcy.
Congress should reject legislation that would spread predatory loans and turn the dreams of many American families into nightmares.