Rent-a-bank schemes target economically vulnerable Rhode Islanders; There's a legislative fix that needs to pass

“In a perfect world, we may not exist. I readily acknowledge that,” said Thomas Coleman, a lobbyist for OppFi, a leader in rent-a-bank lending. “In a perfect world, people would not need [us.]"

Katelin Kaiser, policy counsel on the state policy team at the Center for Responsible Lending’s Durham office

“Opponents claim this bill will not stop high-cost lending, will hurt Rhode Island banks, and will reduce access to credit,” said Katelin Kaiser, policy counsel on the state policy team at the Center for Responsible Lending’s Durham office. “Frankly, those claims do not hold up.”

Kaier was speaking before the Rhode Island Senate Commerce Committee on S2206, which the sponsor, Senator Samuel Bell (Democrat, District 5, Providence), described as banning “the on-line version of payday lenders.” Last year, after more than a decade of hearings, bills to eliminate the evil of payday lending were finally passed and signed into law in Rhode Island. As a result, Rhode Islanders will no longer be victimized by outrageous interest rates exceeding 160% when the law takes effect in 2027. Consumers will finally be protected from one type of high-interest loan, but opportunistic lenders, unhappy with 24% and 36% interest rates, have developed new ways to prey on struggling people, hence the development of Rent-A-Bank schemes and Earned Wage Advances (EWA).

Here’s the video:

The Rent-a-Bank Scheme

Ordinarily, banks and other financial institutions are regulated and bound by the laws of the states in which they do business. However, in 1980, Congress enacted the “Depository Institutions Deregulation and Monetary Control Act” (DIDMCA), allowing state-chartered banks to follow the interest rate limits of their home states rather than the lower limits of other states in which they do business. Although in 1978 Congress permitted nationally chartered banks, including the largest and best-known ones, to do so, it is not common practice for them to charge triple-digit interest rates on any of their products.

With the rent-a-bank scheme, a lender (without its own national or state charter) arranges loans - soliciting and processing the applications, putting up the funds, and managing almost every part of the lending process, including collection - yet at a critical juncture of the process they pay one of these banks chartered out of state to sign off on the loan at triple-digit interest rates. In essence, the lender is renting the bank for this one step in the process that allows it to avoid state interest rate limits on small loans. This is why, in California and elsewhere, the rent-a-bank schemers have been accused of violating truth-in-lending rules. In the rent-a-bank scheme, the lender, which would otherwise be subject to state interest limits, tries to claim it is merely an intermediary arranging the loan, but for all practical purposes, it is the true lender, not the out-of-state bank.

Senator Bell’s legislation targets rent-a-bank schemes by opting Rhode Island out of the DIDMCA for loans made within Rhode Island. This will make financial institutions chartered in other states no longer exempt from interest rate limits that apply to financial institutions chartered in Rhode Island. The Act would also prevent evasion of Rhode Island’s interest rate limits and lending rules by clarifying that lenders, whether or not they identify themselves as such, remain bound by Rhode Island’s lending laws for both small loans and loans in general.

“First, S2206 addresses the main source of triple-digit lending,” continued Katelin Kaiser. “On-line lenders are partnering with a small number of out-of-state banks to evade Rhode Island law. This bill closes that loophole and ensures that lenders making loans to residents follow Rhode Island’s interest rates. These loans are driven by non-bank FinTech lenders¹ operating through rent-to-bank arrangements, which this bill directly targets. Opponents argue that national banks will step in and continue making these loans. There is no evidence that national banks are offering high-cost consumer installment loans at this scale, and even if lenders attempted to shift activity through national banks, the S2206 anti-evasion provisions are designed to prevent such end runs and ensure that Rhode Island law still applies.”

Kaier continued:

“Second, this bill strengthens, not harms, Rhode Island’s local financial banking institutions. Today, local banks and credit unions must follow state rate caps, while out-of-state lenders use these rent-to-bank arrangements to charge up to 195% APR. That is not competitive parity. S2206 restores marketplace fairness and ensures consumers are not exposed to vastly different and harmful loan terms simply because a lender operates out of state. I also want to note that there’s no evidence that Rhode Island state-charter banks rely on triple-digit interest rates to compete regionally.

“Rhode Island would not be alone in taking this step. As you heard, Iowa and Puerto Rico have exercised their authority for decades. Lending happens in those states. Most recently, Oregon enacted DIDMCA opt-out legislation to address these protections of evasive lending. In 2023, Colorado also opted out of DIDMCA. That legislation was legally challenged and is currently in the 10th Circuit, which granted rehearing. Importantly, what’s going on in the 10th Circuit is not binding on Rhode Island. Rhode Island is located in the 1st Circuit, so the 10th Circuit decision is not binding. Importantly, the 10th Circuit panel decision said that loans made in the state are determined by where the borrower is located or where the bank is located.

“Importantly, the evidence is clear: Triple-digit loans prolong financial distress. The Center for Responsible Lending’s research shows that borrowers of high-cost installment loans pay substantial interest while making little progress on principal, frequently refinancing or stacking additional debt, thereby deepening financial distress.”

“In a perfect world, we may not exist. I readily acknowledge that,” said Thomas Coleman, a lobbyist for OppFi, a leader in rent-a-bank lending. “In a perfect world, people would not need to come to companies like OppFi or others in our space, but in emergencies, we can work with people with subprime credit.” Coleman took issue with Senator Bell’s framing of rent-a-bank schemes as “the on-line version of payday lenders.”

“While I think the comment was really clever, I am concerned that it risks obscuring an important issue related to small-dollar credit,” said Lobbyist Coleman. “Those considerations are access and who is providing. Right now, more than a third of Americans cannot provide for a $400 emergency. They don’t have the means to do so. In those circumstances, you’re finding yourself in need of medical treatment. Your pet may have treatment. Your car may have a circumstance. What do you do in those circumstances? OppFi, or lenders like us, are the state- and federally-regulated, licensed answer to those questions…

“The intent here is to provide certain consumer protections for Rhode Islanders,” continued Coleman. “I think they should have them. We are a company that does not allow for multiple loans. We do not reloan. We do not refinance unless there’s been a documented inability to repay the loan.”

This comment spurred a response from Katelin Kaiser:

“Mr. Coleman said that OppFi does not refinance or reloan. That is blatantly false,” said Kaieser. “Importantly, I looked at the Consumer Financial Protection Bureau and, in a complaint submitted in January 2026, a Rhode Island borrower described their experience with an OppFi loan. I’m going to read exactly what they said

“I have an installment loan with OppFi loans. I requested assistance due to financial hardship and was offered limited options that I felt pressured to accept and avoid escalation. I made a payment to prevent further issues, but I believe the terms and representations around hardship assistance and repayment options were unclear and unfair. I’m requesting a review of the lender’s practices and how hardship options are communicated.”

“This sheet shows the vast difference between a 12-month, $3,000 loan at Rhode Island’s 24% APR rate cap, still a rate higher than many of us would be offered, and the same loan with OppFi’s typical 160% APR,” said Alan Krinsky, Director of Research and Fiscal Policy at the Economic Progress Institute.

“This is not a small difference,” noted Krinsky. “And that’s if everything goes well and not refinancing the loan and resetting the clock. This isn’t affordable credit and isn’t the loan product Rhode Islanders need. Many local banks and credit unions offer loans in the $1,000 to $25,000 range at competitive rates within the state caps, so we don’t need these triple-digit rates.”

Krinsky continued:

“One major point I want to emphasize is the misalignment between borrowers’ and lenders’ interests. In an ideal lending market, lenders profit only if borrowers repay the loan according to its terms. But with the rent-a-bank scheme, borrowers frequently pay off the loan amount and costs halfway through the loan term, allowing the lender to recoup their investment and profit even if the borrower later defaults. The profit model here assumes frequent financing and high default and charge-off rates. While commercial banks and credit unions tend to have default rates below 1% or 2%, OppFi has reported a 27.5% default rate and a 51.4% charge-off rate on receivables.

“The legislation before you will address this harm in two ways. One, by opting out of a federal statute that allows banks in one state to export their higher rates to states like Rhode Island, and two, by enacting strong lender provisions in Rhode Island law. In terms of true lender language, while some like to argue that all that matters is who signs off on the loan, the law in courts urges us to look instead to who has the predominant economic interest in the loan, that is, who has the risk and reward? In the case of rent-a-banks, it’s clear that the Utah bank signing the loan takes little or no risk and receives a fixed reward. The bulk of risk and reward remains with the FinTech companies, doing everything but signing on the dotted line. They’re the lenders, and they should be regulated as such. While it may be that the statute already provides for this, it would certainly help the Department of Business Regulation and the Rhode Island Attorney General’s office if it were more explicit.

“Washington State enacted something like this, true lender language, and five of the six rent-a-bank lenders responded by stopping their lending in the state. You can see from the charts I provided how Rhode Islanders are paying a huge amount of interest at predatory rates they should be protected from, just as we protect against other harmful products. You have the opportunity to stop this now, this year, and protect Rhode Islanders. I urge you to send this legislation to the floor for a vote.”

Many advocacy groups that deeply understand the struggle of low-income Rhode Islanders submitted written testimony in support of the legislation, including:

• Capital Good Fund

• Cooperative Credit Union Association

• Housing Network of Rhode Island

• Local Return

• National Consumer Law Center

• Rhode Island Working Families Power

• SEIU 1199 NE

• Sojourner House

1. Fintech lenders are digital-first financial technology companies that use algorithms, data analytics, and automated platforms to underwrite and fund loans faster than traditional banks, often focusing on underserved borrowers.