State AGs sound alarm over Enova, OppFi buying banks

• Key insight: A coalition of state attorneys general is asking federal banking regulators to reject Enova's proposed acquisition of Grasshopper Bank and OppFi's proposed purchase of BNC National Bank's holding company. 
  
• What's at stake: The attorneys general warn that if the nonbank lenders are able to buy banks, they could bypass state usury laws and offer predatory, triple-digit interest rate loans nationwide.
  
• Expert quote: "Approval of these charters would mark an undeniable shift in the types of entities that enter our national banking system, and it should be cause for alarm,"  — letter from 20 state attorneys general, including Illinois' Kwame Raoul
  

A coalition of 20 state attorneys general, most of them Democrats, is urging federal financial regulators to reject proposed acquisitions of banks by high-cost installment lenders.

The state AGs sent letters Wednesday to prudential regulators, urging them to block two Chicago-based installment lenders — Enova International and Opportunity Financial, known as OppFi — from entering the traditional banking system. 

The state officials are concerned that the two lenders will use bank acquisitions to override state usury laws.

"The high-cost, high-charge-off lending practices that characterize Enova's business is not traditional bank lending, and Enova should not be permitted to use a bank charter to spread such practices throughout the United States," the attorneys general wrote.

The letter's signatories include Illinois Attorney General Kwame Raoul, California Attorney General Rob Bonta and New York Attorney General Letitia James.

Earlier this month, James led a coalition of AGs from 15 states, including California and Illinois, in formally asking the Federal Reserve Board to hold public hearings to evaluate whether Enova's deal to acquire a bank was made to evade state consumer protections. 

"Given the implications of these new charter applications for consumers and the broader economy, we ask that you allow ample opportunity for public comment and hold public hearings before making a decision about whether to approve their entry into the banking system," the AGs' latest letter states.

In December, Enova announced a deal worth roughly $369 million to buy $1.6 billion-asset Grasshopper Bank, a digital bank in New York. At the time the deal was announced, Enova said that If approved, the transaction was expected to close in the second half of 2026.

Four months later, Enova CEO Steve Cunningham told analysts: "I think there's a process you go through when you file a formal application with the regulators. We're going through that process now. It's pretty typical for anybody who's applying for a bank charter, or to become a bank holding company."

OppFi reached a $130 million deal in April to buy the holding company of the $1.1 billion-asset BNC National Bank in Bismarck, North Dakota. It said at the time that it expected the deal to close in the fourth quarter.

Under the Bank Holding Company Act, the Fed must take into consideration a company's managerial competence, its overall financial condition, and the convenience and needs of the communities that the bank plans to serve. 

The state AGs say Enova plans to move the headquarters of Grasshopper Bank from New York, where it is subject to New York's usury limits, to Utah, where no such limit exists. Enova operates CashNet USA, which charges triple-digit annual percentage rates, and NetCredit, which charges APRs of up to 99.99%. The agreements to buy banks "are deliberate efforts to avoid state usury laws and to extract profit from those that are in desperate need of money," the state attorneys general said in their letter.

The AGs claim Enova and OppFi are trying to bypass state interest rate caps and sell loans with triple-digit interest rates to vulnerable, mostly subprime borrowers nationwide. 

"Enova and OppFi's history of high-cost lending and flagrant efforts to evade applicable laws render such applications inconsistent with the standard for approval under the law and approving them would undermine the integrity of the national banking system," the state attorneys general wrote.  

Separately, a coalition of consumer advocates led by the Center for Responsible Lending asked the Fed in April to hold hearings on the Enova-Grasshopper deal, and "to conduct a rigorous, independent review."

Both Enova and OppFi each currently partner with banks that are chartered in states with no interest rate caps. They offer loans with interest rates of more than 195%, the state AGs claim, but the number of the states where they can charge those rates is limited. Owning a bank would give them the ability to charge interest of 100% or more from coast to coast.

Under the National Bank Act, national banks can charge interest rates permitted by the state where the bank is located, regardless of where the borrower resides. The Depository Institutions Deregulation and Monetary Control Act, or DIDMCA, provides parallel rights to state-chartered banks — at least those that are making loans within their home states.

Interest rate caps vary depending on the type of loan, a lender's charter, and state usury laws. Nearly all states have some form of general usury law, but a core group of 21 states and the District of Columbia have specifically outlawed triple-digit interest rates on payday loans and short-term credit products. A handful of states have a 36% annual percentage rate cap.

For example, California caps interest rates at 36% for consumer loans ranging from $2,500 to $10,000.

"This unequivocally demonstrates the will of the people — regardless of political party — to prevent unaffordable lending," the state attorneys general said. "These laws are in place to help ensure that borrowers can afford to repay their loans. In their absence — or when preempted — lenders are free to engage in riskier lending without regard for consumers' ability to repay the loan by using excessively high interest rates to ensure they can still profit even if the borrower defaults."

The 20 state AGs claim that high-cost fintech lenders such as Enova and OppFi do not ensure that borrowers have the ability to repay their loans, resulting in high default and charge-off rates. Enova has charge-off rates over 50%, which the states claim "have never been tolerated in a national bank." 

"We strongly urge you to deny bank charters, bank holding company applications, bank mergers and acquisitions, deposit insurance, or other banking privileges for companies that make high cost loans that evade state usury laws or operate with amplified risks to the financial system and endanger consumers," the state attorneys general wrote. 

In the past year, there has been an increase in online lenders seeking to become banks, as well as an uptick in fintech companies, cryptocurrency exchanges and payment platforms applying to enter the banking system.