Opinion

New FDIC, OCC Proposal Puts Small Businesses in the Path of Loan Sharks

Small businesses may become besieged by a new wave of predatory “rent-a-bank” lending as a result of a new rule proposed by the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. The OCC and FDIC’s direct support for a predatory lender that targets the owners of small businesses and jeopardizes their homes shows that these are not just “Chicken Little” claims. 

Predatory lenders are saddling small business owners and their customers with usurious loans at astonishing rates of interest in states where those rates are illegal by laundering the loans through banks, which are not subject to state rate caps. While these predatory rent-a-bank schemes are growing, the FDIC and OCC have not only failed to police their banks, they are supporting a predatory lender in court. 

The FDIC and OCC’s joint amicus brief supporting World Business Lenders (WBL) in Rent-Rite Super Kegs v. World Business Lenders proves they are actively supporting predatory lenders. The agencies defend WBL’s ability to charge 120% APR on a $550,000 loan, in violation of Colorado’s interest rate limits, because the loan technically came from FDIC-supervised Bank of Lake Mills in Wisconsin, which then sold the loan back to WBL. Not one word of the briefs in support of WBL expresses concern about the ridiculously predatory interest rate or raised the question of whether the bank was the true lender.

The OCC and FDIC have now proposed a rule that would allow nonbank lenders like WBL to charge the same unlimited rates that a bank could if a bank originates a loan and then sells it to a state-regulated lender. The agencies justify the proposal using the same arguments that they used to defend WBL’s 120% APR in the Rent-Rite case.

Yet the Rent-Rite case is not an aberration. WBL’s current partner-in-crime is OCC-supervised Axos Bank, which is involved in equally ugly cases. 

In 2014, World Business Lenders was the subject of a Bloomberg article describing how the lender targeted struggling small businesses, sending many of them into bankruptcy, using many of the practices, and even some of the same people, that fed the 2008 financial crisis. 

Still, more than five years later, small business owners are being preyed upon by WBL, now with the OCC and FDIC’s blessing. 

Ramanjeet Kaur and Kulwinder Sing Uppal filed a lawsuit in Massachusetts in April of 2019, Kaur et al. v. World Business Lenders et al., alleging the couple was threatened with foreclosure after borrowing $175,000 at 92% APR from WBL for their business, New England Distributors. The loan, issued by Axos Bank but presented by and later assigned to WBL, was secured by a mortgage on their home. 

In another suit, filed in New York in October 2019, Jacob Adoni, owner of Harbor Park Realty, claims he was inundated with multiple threats to foreclose on his home after receiving a $90,000 business loan at 138% APR, secured by his personal residence. 

And World Business Leaders has been at this scheme for years. In May 2017, WBL was accused of racketeering in a case brought by Boris Simon, the owner of B&S Medical Supply in Brooklyn, N.Y. WBL solicited Simon for a $28,000 business loan provided by Liberty Bank, with his private residence as security. The loan application and loan summary featured both the business logo and contact information for Liberty Bank, but Simon was soon informed that WBL would service the loan and had the right to collect payments. The interest rate on the loan was a whopping 73% APR, well in excess of New York’s strict usury laws. 

These cases represent just a fraction of those brought against WBL and they don’t even begin to address the scale on which lenders across the nation are employing rent-a-bank schemes to ensnare small business owners in debt trap loans.  

The small businesses on Main Street need strong protections from predatory lenders seeking to exploit the “ups and downs” so many experience — not a green light to issue loans at rates befitting a loan shark. The OCC and FDIC should abandon its proposed rule that encourages these predatory lending practices and go to bat for the small business owners harmed by these predatory lenders. 

 

Amanda Ballantyne is the executive director of the Main Street Alliance, a national network providing small businesses a voice on the most pressing public policy issues across the nation.

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