Oregon is officially shutting down a workaround that let certain online lenders hammer borrowers with triple-digit interest rates. Starting Friday, a new state law will pull the plug on so-called “rent-a-bank” deals and bring most consumer finance loans under Oregon’s 36 percent APR cap. The change follows years of enforcement actions, regulatory warnings and complaints from consumer advocates about high-cost lending.
What Lawmakers Actually Passed
House Bill 4116, now Chapter 113, uses the Legislature’s opt-out authority to declare that Oregon does not want the amendments in section 521 of the federal Depository Institutions Deregulation and Monetary Control Act of 1980 to apply to consumer finance loans. According to Oregon Legislative Information, the bill was enrolled as HB 4116, and LegiScan lists the law’s effective date as June 5, the 91st day after adjournment.
How The Rules Are Changing
The Oregon Division of Financial Regulation defines “consumer finance loans” as unsecured small-dollar loans with terms of 60 days or more and says licensed consumer finance lenders must keep rates at or below a 36 percent APR for those products. In a June 4 news release, the division said HB 4116 blocks out-of-state, state-chartered banks and their third-party partners from using DIDMCA to export higher home-state interest rates into Oregon, according to the Oregon Division of Financial Regulation.
The Numbers And The Crackdown
The division reports that its review uncovered more than 31,000 loans issued since 2020 that carried rates above Oregon’s cap, totaling at least $61 million. It also recently secured a settlement that requires a lender to repay $900,000 in excessive interest, according to the Oregon Division of Financial Regulation. “Consumer finance companies cannot hide behind out-of-state banks to bypass Oregon’s consumer protection laws,” DFR Administrator TK Keen said.
Who Gets Caught In The Net
Legal analysts say HB 4116 is aimed squarely at “rent-a-bank” arrangements, where fintech originators team up with out-of-state, state-chartered banks so they can apply the bank’s home-state interest rate to borrowers in Oregon. Advisers note that the opt-out applies to state-chartered, FDIC-insured banks and to anyone who originates, brokers or facilitates covered loans. National banks still operate under a different federal regime and are generally outside the law’s reach, as explained by Alston & Bird.
Industry Blowback And Open Legal Questions
Trade groups argued that the measure could make some credit products harder to offer and urged lawmakers to preserve access to those loans. The American Fintech Council called for a veto and warned that the change could put state-chartered banks and their fintech partners at a disadvantage. The broader fight over rate exportation is already playing out in court in other states, and a recent Tenth Circuit opinion has become required reading for lawyers on both sides, according to Justia.
If You Think You Were Overcharged
If you believe you were charged more than a 36 percent APR on a consumer finance loan, hang on to your loan agreement and payment records and contact the Division of Financial Regulation’s consumer advocates at 888-877-4894 or [email protected]. You can also file a complaint online with the division, which says it will investigate potential violations and seek restitution where appropriate.
