Alarm bells raised over fintech firm’s bank purchase

While many Americans have an account at a traditional bank, there are some who, for various reasons, can’t get an account.

Roughly 18% of Americans are unbanked, meaning they don’t have a bank account or don’t fully participate in the banking system, according to the Federal Reserve Bank of Cleveland.

This might be because they’ve been flagged in a bank’s system, are not in an area served by traditional banks, or have opted out of the banking system for personal reasons.

Fintech firms and online banks have tried to fill this role by making it easier for Americans who can’t get an account or who struggle to get approved for a loan by a traditional bank.

Operating on the fringes of regulated banks, one of these fintech lenders is about to go into banking. But some have raised alarm bells.

OppFi is buying a bank

Bank consolidation has been on the rise recently due to a favorable regulatory environment, TheStreet reported. Under U.S. President Donald Trump, approval time for deals has fallen from 17 months to three to four months on average, experts told TheStreet.

Amid this climate, fintech lender OppFi has shared that it plans to buy Arizona-based bank BNC National Bank in a $130 million stock-and-cash deal, which will allow it to offer banking services, including checking and savings accounts, on a national scale.

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The combined deal will merge OppFi’s online lending platform with BNC’s national bank charter.  At the moment, OppFi partners with FinWise Bank, First Electronic Bank, and Capital Community Bank to offer its loan services.

“The transformative combination of OppFi’s digital-first platform and BNC’s national bank charter unlocks significant opportunities for growth and product diversification,” OppFi CEO Todd Schwartz said in a statement.

Dan Collins, BNCC President and CEO said the deal would increase the capital the bank holds and provide better services for its customers.

“With greater financial flexibility and enhanced digital capabilities, we will be well-positioned to elevate the customer experience and better serve our customers as their needs continue to evolve,” he stated.

OppFi’s purchase of a bank will allow it to offer more bank account options for customers.

AFP via Getty Images

Controversy surrounding OppFi  

Fintech lenders aren’t always seen in the same light as regulated banks. While it’s often easier to borrow from such lenders, one study from the Harvard School of Business found that consumers who borrow from fintechs are more likely to sink into debt and spend beyond their means.

Meanwhile, a survey from the Federal Reserve Bank of Cleveland found that those who are unbanked don’t always find that alternative financial services like fintech firms are an adequate substitute.

So it’s no wonder that some have urged caution about OppFi’s expected takeover of a chartered bank.

This isn’t the first time OppFi has been scrutinized.

OppFi’s past regulatory issuesIn 2021, OppFi agreed to refund Washington, D.C., residents $1.5 million in a settlement with the city over its interest rates, according to The Washington Post.OppFi has also been investigated by the Consumer Financial Protection Bureau on whether its practices violate the Military Lending Act, which caps the interest rate made to military borrowers at 36%. The CFPB decided not to take an enforcement action against OppFi, regulatory filings show.OppFi has also been battling California regulators over claims that it uses a “rent-a-bank” partnership with FinWise to circumvent the state’s interest rate limits. According to the ABA Banking Journal, a California state judge preliminarily ruled in early April that state regulators could not classify the partnership as illegal.  

OppFi has also been criticised for circumventing states’ usury laws to offer loans with interest rates that exceed state limits.

Concern about nonbank lending practices

The National Consumer Law Center is the latest to ring the alarm bells regarding OppFi.

The nonprofit says the lender charges interest as high as 160% or more and that the BNC National Bank deal would allow OppFi to ignore interest rate limits in 45 states.

“OppFi’s 160% interest charges are outrageous. President Trump should not allow OppFi to become a national bank and spread high interest rate pain across the country,” said Lauren Saunders, senior attorney at the National Consumer Law Center.  

While most states have an interest rate limit on nonbank lenders like OppFi, federal law allows national banks to only charge the rate allowed in the state where the bank is headquartered. This practice allows nonbank lenders like OppFi to circumvent state usury laws that cap interest rate ceilings, according to one study from the Federal Reserve.  

While OppFi is currently headquartered in Chicago, where there are lending cap rules, BNC National Bank is located in Arizona, a state that does not cap interest rates.

Related: This major bank is going on a branch-opening spree

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