Lina Irawan
On a chilly December night in 2022, Austin Patrick, then a college student, was making the arduous journey back to Virginia from his family’s home in Iowa, a familiar route along Interstate 64 near St. Louis. What began as a routine drive quickly escalated into a harrowing ordeal when a critical brake caliper in his Audi A6 suddenly snapped, spewing fluid and rendering his brakes useless at highway speeds. Miraculously, Patrick maintained control, safely navigating his disabled vehicle to the nearest exit. However, the immediate mechanical crisis swiftly gave way to an equally daunting financial one for the cash-strapped student, hundreds of miles from home.
"I not only had to deal with a $1,200 repair bill but also costs for towing and hotel and all of that," Patrick, whose full name is withheld for privacy, recounted to Money. With limited savings and a less-than-stellar credit history, Patrick found himself in urgent need of funds. His online search for rapid financial assistance quickly led him to Opportunity Finance, commonly known as OppFi, an Illinois-based online lender. Promising same-day funding with lenient credit requirements, OppFi appeared to be a lifeline. The hidden cost, however, was staggering: an annual percentage rate (APR) of 160%. "Out of desperation, I accepted a $1,400 loan," he admitted, feeling he had no other viable option at the time.
This exorbitant interest rate stands in stark contrast to conventional lending practices. Most states impose caps on installment loans exceeding $500, typically ranging between 35% and 40%, according to the National Consumer Law Center (NCLC), a prominent nonprofit advocacy group. For comparison, a standard two-year personal loan from a commercial bank averages just under 12% APR. Patrick’s loan, with an interest rate more than 13 times what a typical bank would offer, raises a critical question: how is such a practice legally permissible?
Consumer advocates point to a sophisticated, yet controversial, strategy employed by a segment of online lenders: the "rent-a-bank" loophole. This intricate mechanism allows fintech companies to sidestep state-specific usury laws, enabling them to charge triple-digit APRs even in jurisdictions where such rates are explicitly prohibited. Money’s investigation, which involved sifting through over 600 pages of financial filings, bank charter applications, court records, public comments, and consumer complaints, not only illuminated the inner workings of this "rent-a-bank" playbook but also unearthed a more ambitious plan to cement these lending practices into federal policy, a development that began gaining traction during the Trump administration. This potential shift, advocates warn, could trigger an "APR arms race" among lenders, with potentially devastating consequences for millions of vulnerable borrowers across the nation.
"These loans are like poison to people’s long-term financial prospects," asserted Mike Calhoun, president of the nonprofit Center for Responsible Lending (CRL), underscoring the severe impact of such high-cost credit on individuals’ financial well-being and stability.
The "Rent-a-Bank" Playbook: Exploiting Regulatory Gaps
The core of the "rent-a-bank" scheme lies in the nuanced distinctions between federal and state banking regulations. National banks, chartered and supervised by federal authorities like the Office of the Comptroller of the Currency (OCC), are bound by stringent responsible lending guidelines. Following the subprime mortgage crisis that precipitated the Great Recession of 2008, federal guidance emphasizes that banks must cater to community needs and extend credit only to borrowers who possess a demonstrable and reasonable ability to repay their loans without resorting to refinancing, liquidating assets, or suffering other "adverse customer outcomes." This federal standard has historically kept interest rates on personal loans from national banks below the 12% threshold, significantly lower than even most state lending caps.
Fintech lenders, however, are not banks in the traditional sense, and thus, are not directly subjected to these same federal standards. The "rent-a-bank" model ingeniously leverages the fragmented landscape of state lending laws. While 45 states and Washington, D.C., have enacted outright bans on installment loans carrying triple-digit APRs, a handful of states, most notably Utah, maintain more permissive regulatory environments, with no specific statutory limits on interest rates, only forbidding "unconscionable" rates – a term open to broad interpretation.
This regulatory asymmetry becomes critical due to the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980. This federal law, originally intended to foster competition and stabilize the banking sector, includes a provision that allows federally insured banks to export their home state’s interest rates to borrowers in other states, even if those rates would be illegal under the borrower’s local state laws. This "exportation" power is the cornerstone of the "rent-a-bank" model. The intent of DIDMCA was to prevent disintermediation in the 1980s, where depositors were pulling money out of banks to invest in higher-yielding money market accounts, but its broad language inadvertently created a pathway for high-interest rate arbitrage across state lines.
In practice, this means fintech companies, often based in states with stricter usury laws like Illinois, can partner with small, federally chartered banks located in states with laxer regulations, such as Utah. The fintech company then markets loans across the country, screens applicants, sets loan terms, and handles collections. Crucially, the loans are technically underwritten by the partnering federal bank. This arrangement allows the fintech to charge rates permissible in the bank’s home state (e.g., Utah) to borrowers residing in states where such rates are illegal (e.g., Virginia or Illinois). The fintech acts as the "loan servicer" and typically purchases a high percentage of the loans from the partner bank, thus retaining most of the economic interest and risk, while the bank effectively "rents" out its charter.
Companies like OppFi (lending as OppLoans) and Enova International (operating under CashNetUSA and NetCredit) have masterfully deployed this strategy. They partner with Utah-based institutions such as FinWise Bank, First Electronic Bank, and Quill Bank. Austin Patrick’s 160% APR loan is a direct consequence of this convoluted but perfectly legal strategy, allowing an Illinois-based fintech to extend a loan with an APR that would be banned in both Illinois and Virginia.
The Borrower’s Burden: Austin Patrick’s Ordeal
Austin Patrick’s story is a stark illustration of the long-term consequences of high-interest lending. Despite the daunting biweekly payments associated with his 160% APR loan, Patrick diligently kept up with his obligations for approximately two years. The financial strain intensified when he began graduate school in 2024, making the payments increasingly unsustainable. Eventually, he was forced to stop paying altogether. The monthly burden of hundreds of dollars, when his budget was already stretched thin by tuition and living expenses, became insurmountable.
Throughout his initial two years of repayment, Patrick recalls being bombarded with targeted advertisements from OppLoans, enticing him to refinance his existing loan. While refinancing is typically a strategy to secure a more favorable interest rate and lower payments, OppLoans’ pitch was different. Their ads encouraged him to borrow against the money he had already repaid and to extend the loan term, all while maintaining the original, crushing 160% APR. This cycle of borrowing more to cover existing debt, without reducing the interest rate, is a hallmark of what consumer advocates term a "debt trap." Each refinance added more fees and pushed the repayment period further into the future, effectively resetting the debt clock without alleviating the underlying financial pressure.
By his own account, Patrick estimates that he has paid back over $6,800 on an initial $1,400 loan, encompassing the original principal and four subsequent refinances over the years. Compounding his distress, approximately $3,650 remains in collections. The financial quagmire has left him feeling ensnared, with his legal recourse severely limited by arbitration clauses embedded within his loan agreement. These clauses effectively waive his right to sue the lender or participate in class-action lawsuits, forcing any disputes into private arbitration, a forum often perceived as favoring corporations and limiting transparency. The inability to seek traditional legal redress further exacerbates the feeling of helplessness for borrowers like Patrick.
Experts in consumer lending assert that Patrick’s experience is far from unique; in fact, he embodies the "ideal customer" for these fintech lenders. "They don’t care if borrowers can afford to fully pay off the loan," stated Lauren Saunders, a senior attorney specializing in lending law at the NCLC. "They only care about stringing them along long enough to make a profit." This perspective suggests a business model designed not for successful repayment, but for prolonged engagement and maximum interest accrual.
The Business Model: High APRs and High Charge-Offs
The financial filings of these fintech lenders corroborate the advocates’ claims. According to OppFi’s financial disclosures, the company has provided over $8.6 billion through 4.7 million loans to more than 1.6 million unique borrowers as of December 2025. In a 2024 filing, OppFi reported that the typical APR on its loans ranged between 157% and 163%. Updated figures shared with Money indicate that OppFi’s lending has since grown to $9.2 billion across 4.9 million loans through the end of June. These figures highlight the massive scale of their operations and the substantial volume of high-interest credit being extended.
A pivotal 2023 analysis by the Pew Charitable Trusts, examining prominent "rent-a-bank" lenders including OppFi, Enova, and Elevate Credit, revealed a striking pattern: charge-off rates for their loans typically hovered between 50% and 55%. This figure stands in stark contrast to the mere 2% to 4% charge-off rate observed at conventional banks. A charge-off signifies that a lender has written off a debt as unlikely to be collected. The implication of a 50-55% charge-off rate is profound: these lenders expect more than half of their borrowers to be unable to fully repay their loans. This is not merely an unfortunate outcome but an integrated component of their financial projections.
Saunders and Calhoun argue that these extraordinarily high charge-off rates are not a flaw in the business model, but rather an intentional feature. The immense interest rates charged to the subset of borrowers who do manage to keep up with payments, or those who get trapped in refinancing cycles, are sufficient to offset the losses from those who default. This model, critics contend, thrives on the financial vulnerability of its target demographic, prioritizing profit generation over the financial health of its customers. They highlight that these loans often target individuals who are already financially precarious, making them even more susceptible to long-term debt.
Beyond "Renting": The Push for Federal Ownership
The intricate legal maneuvers behind these high-interest loans are often opaque to borrowers like Austin Patrick, who, for years, remained unaware of the sophisticated strategies employed to circumvent state APR limits. However, state legislators and regulators are increasingly recognizing the detrimental impact of "rent-a-bank" schemes and are taking proactive measures to curtail them.
Some states are leveraging a provision within DIDMCA that allows them to "opt out" of the federal law’s interest rate exportation clause, thereby preventing federal banks from partnering with fintechs to bypass their state lending laws. Iowa, Oregon, and Colorado have already successfully implemented such opt-out provisions, effectively halting high-APR lending within their borders. Other states are actively considering similar legislative actions, reflecting a growing consensus on the need for stronger consumer protections. Concurrently, California has initiated a lawsuit against OppFi, seeking over $100 million in damages, alleging that the company’s lending practices violate state law. These legal and legislative challenges have prompted "rent-a-bank" lenders to withdraw from affected states, creating a growing pressure point for their business model.
In response to this mounting state-level opposition, fintech giants Enova and OppFi are pursuing a significantly more ambitious strategy: outright acquisition of national banks. This represents a pivotal shift from "renting" the charters of partner banks to "owning" them directly, with the explicit goal of embedding their lending practices within the federal banking system and extending their reach nationwide. By acquiring a national bank charter, these fintechs would gain the ability to operate across state lines under a single set of federal regulations, potentially insulating them from the patchwork of state usury laws and "true lender" challenges.
In January, Enova filed an application with the Federal Reserve Bank of Chicago to acquire Grasshopper Bank, a New York-based institution, with the stated intention of relocating the bank to Utah post-acquisition. OppFi swiftly followed suit, applying to the Chicago Fed to acquire Utah-based BNC National Bank. Money’s analysis of over 5,000 bank holding applications submitted to the Federal Reserve System since 2000 revealed that never before had high-interest fintech lenders attempted to acquire national banks. The sudden emergence of two such applications within a single year is, according to Saunders, no mere coincidence.
She links this development to the perceived regulatory environment of the Trump administration, which was characterized by a more lenient approach towards financial institutions. Notably, the Consumer Financial Protection Bureau (CFPB), an agency established to protect consumers in the financial marketplace, saw its enforcement actions against Enova dropped in September, just months before Enova submitted its bank charter application. While the CFPB did not comment on the timing of this decision, and Enova declined to address specific questions regarding it, the sequence of events has raised concerns among consumer advocates about potential regulatory capture or deregulation efforts.
These acquisitions are not a foregone conclusion, however. They require approval from multiple federal regulatory bodies: the Federal Reserve (Fed), which oversees bank holding companies and mergers; the Office of the Comptroller of the Currency (OCC), which charters and supervises national banks; and, in Enova’s case, the Federal Deposit Insurance Corporation (FDIC), which insures deposits and assesses the safety and soundness of institutions. Enova CEO Steve Cunningham stated, "Enova has spent years preparing for this opportunity and is differentiated among nonbank applicants due to our scale. We remain engaged with federal regulators as they continue their thorough review."
The fintechs are transparent about their strategic objectives. In a December SEC filing, David Fisher, Enova’s former CEO, articulated that a federal bank acquisition "positions us to offer a more comprehensive suite of financial solutions across more states to empower consumers and small businesses with the products they need to succeed." OppFi echoed this sentiment, stating that acquiring BNC National Bank would enable it to expand consumer lending "in more states."
The primary justification offered by these lenders for charging triple-digit APRs is their asserted role in serving "underserved" consumers—individuals with low credit scores who are largely excluded from the traditional financial system. Enova’s application to the Chicago Fed, for instance, used the term "underserved" 15 times to highlight its commitment to providing credit to these populations and small businesses. OppFi mirrored this framing, with a spokesperson stating, "Our objective is to responsibly expand access to credit for underserved consumers nationwide." They argue that without their services, these individuals would be forced to resort to even more predatory illegal lenders or face dire financial consequences.
A Chorus of Opposition: "Risky, Unsafe, and Unsound"
This narrative of serving the underserved has met with fervent opposition
