Regulators should reject high-cost lenders' bank charter applications

• What's at stake: Both of these nontraditional lenders have business models of triple-digit interest rate lending that produces unaffordable loans with frequent loan rollovers and high charge-offs.
• Supporting data: Enova offers high-cost consumer loans up to $10,000, with interest rates up to 99.99%, where consumers can be forced to repay multiples of the amount of money they borrow.
• Forward look: The Federal Reserve and OCC should continue to uphold the standards of national banks and reject these unprecedented applications which would harm consumers and small businesses and seriously damage the integrity of national bank charters.

Two high-cost lenders, Enova International and Opportunity Financial, or OppFi, are seeking to acquire national banks and establish bank holding companies. A decision on Enova's application to acquire Grasshopper Bank, in a fast-tracked process that did not sufficiently consider public input, is expected any day now. OppFi is expected to submit an application by the end of the quarter to buy BNC Bank. The Federal Reserve Board and Office of the Comptroller of the Currency should deny both applications.

Both of these nontraditional lenders have business models of triple-digit interest rate lending that produces unaffordable loans with frequent loan rollovers and high charge-offs. Their practices breach long-standing national bank principles of responsible lending and granting the applications would break with the long history of national banks refraining from such unsustainable lending.

CashNetUSA is one of Enova's flagship consumer lending products. You may have seen their frequent ads offering quick money, but it comes with loans at interest rates that can reach nearly 300%. Enova also offers larger and longer high-cost consumer loans up to $10,000, with interest rates up to 99.99%, where consumers can be forced to repay multiples of the amount of money they borrow.

Enova also makes high-cost business loans, with 60% or higher APR and prepayment penalties of 75% of the remaining interest, trapping small businesses in crushing debt. These loans, collected daily or weekly, are pulled from the businesses' operating accounts, which threatens the enterprises' survival. Small businesses and their employees pay the heavy cost, as well as traditional business lenders whose responsible loans are disrupted when these high-cost lenders drive companies into insolvency.

Finally, Enova is a repeat violator of lending laws and was fined more than $18 million by the CFPB between 2019 and 2023 for illegally debiting more than 111,000 consumer bank accounts and then violating orders to stop the practice.

OppFi has a similar record of unaffordable lending. Its 160% APR loans result in frequent loan rollovers and high charge-offs. A 2021 lawsuit filed by the District of Columbia alleged that 75% of OppFi's income is from these serial refinancings. Both OppFi and Enova have charge-off rates of 50% of revenue. This business model generates high revenues and works well for these lenders, but it pushes their customers into deep financial crisis.

Regulation and compliance

CFPB fines Enova $15M for illegally withdrawing funds without consent

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By Kate Berry

November 15

The Federal Reserve considers applications for a bank holding company and the OCC reviews the applications for acquisition of the national banks. Both are required to determine whether the applications meet the needs and convenience of the community to be served by the bank. Historically, high-cost lenders have not received national bank charters, and for good reason.

These lenders' business model of high-cost lending creates unaffordable loans for many of their borrowers. This results in immense harm to borrowers, evidenced in the high rollovers of loans and extraordinary charge-off levels. These practices and results fly in the face of long-standing principles of bank underwriting with responsible lending resulting in borrowers being able to repay the loan according to its terms.

Decades ago, Comptroller Jerry Hawke moved quickly when similar high-cost lenders attempted to use national bank charters for triple digit interest lending, rightly blocking that improper use of the valuable national bank charter. The Federal Reserve and OCC must do the same with these applications.

Enova, recognizing this history, attempts to sugar coat its application by saying that it does not intend to bring its highest-cost lender, CashNet, into the bank holding company and bank. This fig leaf, though, does not hide their goal to break into the national bank system to engage in widespread high-cost, unaffordable lending. In its investor call, Enova explicitly states that it intends to bring its other high-cost divisions into the bank. The national bank charters would allow Enova and OppFi to expand their high-cost lending into many states where it is prohibited for nonbanks.

Now would be a particularly disruptive time to break this long-standing national bank standard. Today, many families are struggling with the affordability of monthly expenses. Adding high-cost, unaffordable debt simply digs their financial hole deeper. It also contradicts the president's calls and executive order for more affordable credit.

The Federal Reserve and OCC should continue to uphold the standards of national banks and reject these unprecedented applications which would harm consumers and small businesses and seriously damage the integrity of national bank charters. Any action on Enova's and OppFi's applications must uphold the basic requirement that national banks provide fair, affordable loans and make explicit that harmful high-cost lending cannot be housed in a national bank charter.