How High-Interest ‘Rent-a-Bank’ Loans Sidestep State Rate Caps

An online search for “online loan” returns a list of low-interest personal loans alongside no-credit-check loans with high interest rates. The latter might not be available in many states if it weren’t for the “rent-a-bank” business model.

This method of lending involves financial technology companies that partner with banks to distribute installment loans with triple-digit annual percentage rates to consumers who may not qualify for lower-interest loans.

Though they’re most popular online, you could also encounter rent-a-bank loans at retail stores, auto repair shops or pet stores, says Lauren Saunders, associate director at the National Consumer Law Center, which advocates for consumers and against rent-a-bank loans.

States have tried to curb high-interest lending by setting interest rate caps, but the rent-a-bank model allows loans with APRs of 150% or higher to reach people across the country. Consumer advocates and researchers say such loans can leave borrowers in…

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This article was written by Annie Millerbernd and originally published on