House Backs Bill That Would Benefit Fintech Partnerships With Banks

Date : 02/14/2018 @ 5:53PM
Source : Dow Jones News

House Backs Bill That Would Benefit Fintech Partnerships With Banks

By Lalita Clozel 

WASHINGTON -- The House on Wednesday approved a bill that would make the resale of high-interest loans more attractive to third-party buyers such as debt collectors -- and bolster fintech firms' partnerships with banks.

The bill passed 245-171. Nearly all Republicans voted for the measure, while Democrats were divided.

The legislation would ensure that loans retain the original interest rate issued by a bank, even if they are sold to nonbanks, which unlike nationally chartered banks are bound by state interest-rate caps. The bill is a response to a 2015 ruling by the Second U.S. Circuit Court of Appeals that affects loans taken out by residents of New York, Vermont and Connecticut, the three states within the court's jurisdiction. The Supreme Court had declined to review the case.

In the Madden v. Midland Funding LLC decision, the appeals court sided with Saliha Madden, a New York resident who had taken out a loan from a Bank of America Corp. unit at 27% interest. The loan was later sold to Midland, a debt collector.

Ms. Madden argued that because the interest-rate cap for short-term loans in New York is 25%, the loan had become usurious, even though it was legal when originated.

Lenders say the court ruling complicates the process of selling debt that originated from New York, Vermont and Connecticut as compared to the rest of the country, where third parties that buy debt from banks are assumed to be exempt from state interest-rate caps.

Supporters of the legislation argue it will bring clarity for companies that buy loans from banks and will allow a new crop of financial firms to reach underserved borrowers.

But some liberal Democrats worry that it could help predatory lenders skirt state laws and reach customers nationwide.

The bill "will allow payday lenders to buy up debt from national banks and be able to charge whatever they would like, 300% and more, to unsuspecting consumers," Rep. Maxine Waters (D., Calif.) said in a speech on the House floor.

Fintech remains a particularly divisive issue for Democrats, who are torn between the potential for new credit options and the risk of consumer-protection abuses. The bill sharply divided Democrats when it passed the House Financial Services Committee in November, pitting 17 backers against nine supporters.

In a letter Wednesday, Rep. Gregory Meeks (D., N.Y.) urged his colleagues to support the bill, arguing that banks rarely team up with predatory lenders.

"Banks are not engaging in payday lending in any meaningful way now," he wrote. "Bank-fintech partnerships allow banks -- especially community banks -- to reach customers they wouldn't otherwise reach and gives fintech innovators a reliable, stable source of low-cost capital."

A similar bill was introduced in the Senate last year by Sen. Mark Warner (D., Va).

Write to Lalita Clozel at


(END) Dow Jones Newswires

February 14, 2018 17:38 ET (22:38 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.

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