Most States Ban Predatory Loans. Lenders Are Using This Loophole to Charge 150% APRs Anyway

On a December night in 2022, Austin Patrick was heading back to college in Virginia after spending winter break with family in Iowa. He was driving on Interstate 64, just outside St. Louis.

Then a brake caliper snapped. Fluid spewed everywhere. His brakes cut out at highway speed.

Thankfully, he maintained control of his Audi A6 and took the next exit. But as a broke college kid stranded over 500 miles from home, another emergency — a financial one — was just beginning.

“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 real last name has been withheld for privacy reasons, tells Money.

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He didn’t have great credit and needed money fast. So he took out a loan from an Illinois-based online lender called Opportunity Finance, aka OppFi. It was one of the first search results that came up, boasting same-day funding with lax credit requirements. The catch? It came with an interest rate of 160%.

“Out of desperation, I accepted a $1,400 loan,” he says. “I didn’t really have a choice.”

Most states cap interest rates on installment loans above $500 between 35% and 40%, depending on the balance, according to the nonprofit advocacy group National Consumer Law Center (NCLC). And at a typical commercial bank, the rate on a two-year personal loan is just under 12% on average.

So how was Patrick’s loan — with an interest rate 13 times what banks offer — even possible?

Consumer advocates tell Money that a few online lenders are notorious for exploiting what’s called the “rent-a-bank” loophole. They can circumvent state lending laws and charge APRs of 100% or more in places that explicitly ban such loans.

To understand exactly how fintech lenders side-step state lending laws, Money combed through more than 600 pages of financial filings, bank charter applications, court records, public comments and consumer complaints. We uncovered not only the rent-a-bank playbook but also a new plan to expand their lending practices under the Trump administration.

Soon, this approach could transform from a niche loophole into federal policy. Advocates warn it could set off an APR arms race among lenders with grave consequences for borrowers.

“These loans are like poison to people's long-term financial prospects,” says Mike Calhoun, president of the nonprofit Center for Responsible Lending (CRL).

The rent-a-bank playbook

National banks must abide by responsible lending rules from federal regulators.

Since the subprime mortgage crisis that sparked the Great Recession, Calhoun explains, federal guidance says banks should serve the needs of the community and lend only to borrowers who have a reasonable ability to repay the loan without refinancing, resorting to selling off assets like their car or house, or experiencing any other quote-unquote “adverse customer outcomes.”

This federal standard has kept interest rates on personal loans from national banks below 12% — far lower than most state lending caps.

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But fintech lenders are technically not banks and are thus not held to that same standard. The rent-a-bank scheme to date takes advantage of a patchwork of state lending laws. While 45 states and Washington, D.C., ban installment loans with three-digit APRs outright, a handful have no specific limit.

Utah is a major example. The state forbids loans only with “unconscionable” interest rates, and several banks located there are friendly with fintech lenders. A federal charter allows these banks to lend across state lines, even at rates another state may ban, due to a 1980 law called the Depository Institutions Deregulation and Monetary Control Act.

In practice, this means a fintech company can market loans across the country, screen borrowers, set terms and collect payments — all while the loans themselves are technically underwritten by a partnering federal bank. OppFi, which lends under the name OppLoans, and Enova International, lending under CashNetUSA and NetCredit, use this strategy to provide loans through FinWise Bank, First Electronic Bank and Quill Bank in Utah.

Patrick’s loan is the direct result of this convoluted but lucrative strategy, which allowed an Illinois-based fintech to extend a 160% APR loan to a Virginia resident even though both states ban such loans.

Despite steep biweekly payments, Patrick stayed up to date on his loan for about two years. But after starting grad school in 2024, he says he just couldn’t afford it anymore. He stopped paying. Over the first two cash-strapped years of repayment, he says he received targeted ads that encouraged him to refinance.

Usually, refinancing a loan is a strategy used to lock in a better interest rate and thus a lower payment amount, but in ads Patrick shared with Money, OppLoan’s pitch to him was to borrow against the money he had already paid back and to extend the length of the loan — while keeping the same 160% APR.

He says in total, including for the original $1,400 loan and four refinances over the years, he has paid back over $6,800. About $3,650 is still in collections. The ordeal has left him feeling trapped; his legal options are limited due to the arbitration clauses in his loan agreement that restrict his ability to sue or join a class-action suit.

Experts say that Patrick's case is not an outlier. In fact, they argue, he’s an ideal customer for fintech lenders.

“They don’t care if borrowers can afford to fully pay off the loan,” says 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.”

Advocates point to the companies' records as proof. According to OppFi’s financial filings, the company has lent money to more than 1.6 million unique borrowers, providing more than $8.6 billion through 4.7 million loans as of December 2025. In a 2024 filing, OppFi stated the typical APR on loans it provides was between 157% and 163%. (In updated figures shared with Money, OppFi says it has lent $9.2 billion across 4.9 million loans through the end of June.)

A 2023 Pew analysis of rent-a-bank lenders, including OppFi, Enova and Elevate Credit, found that the charge-off rates for their loans ranged from 50% to 55%, compared to the 2% to 4% rate of regular banks. In other words, for more than half of the loans they provide, these rent-a-bank lenders expect the borrower to not be able to fully pay them back.

Saunders and Calhoun cite the high charge-off rates as an intentional, key part of fintech lenders' business model. A feature, not a bug.

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Borrowers like Patrick often have little understanding of the legal gymnastics behind the loans that pop up when they Google their options in a financial pinch. It took years for Patrick to realize the extent of the strategy used to get around his state’s APR limit.

Some state legislators and regulators are starting to catch on, too, taking steps to end rent-a-bank loans. A few of them are having success by passing rules that allow them to opt out of the 1980 law DIDMCA, effectively halting fintechs from partnering with federal banks to bypass their state lending laws.

Iowa, Oregon and Colorado have already taken this step, and other states are considering it. Meanwhile, California is attempting to sue OppFi for more than $100 million.

Due to the legal challenges, rent-a-bank lenders have pulled out of those states. But a bigger battle is brewing. Enova and OppFi are already planning their next moves, and they’re attempting to take their lending strategy to the federal level by merging with banks outright.

Rather than “renting” national banks, they’re trying to become them in hopes of cementing the lending strategy nationwide. In January, Enova filed an application to the Federal Reserve Bank of Chicago to acquire New York-based Grasshopper Bank with the explicit intention to move the bank to Utah after the purchase. OppFi followed suit soon after, applying to the Chicago Fed to acquire Utah-based BNC National Bank.

Money analyzed over 5,000 bank holding applications filed to the Federal Reserve System dating back to 2000, and never before have high-interest fintech lenders attempted to acquire national banks.

Suddenly, there are now two in one year.

Saunders says that’s no coincidence. She says the Trump administration has characteristically been very friendly to financial institutions. The Consumer Financial Protection Bureau (CFPB) has been gutted, and the bureau dropped enforcement actions against Enova last September — just months before Enova submitted its charter application.

The CFPB did not respond to Money’s request for comment, and Enova did not respond to a specific question about the timing of the CFPB's decision.

But the acquisitions are not a done deal. These lenders still need approval from the Fed, the Office of Comptroller of the Currency and, in Enova’s case, the Federal Deposit Insurance Corporation.

“Enova has spent years preparing for this opportunity and is differentiated among nonbank applicants due to our scale,” Enova CEO Steve Cunningham says in a statement to Money. “We remain engaged with federal regulators as they continue their thorough review.”

The lenders aren't being coy about their strategy. They openly state the acquisitions would allow them to reach customers in places they can’t currently operate.

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,” said David Fisher, Enova’s former CEO, in a December SEC filing. OppFi similarly said acquiring BNC National Bank lets it to expand consumer lending “in more states.”

In defense of charging three-digit APRs, the lenders argue that their loans help borrowers who have nowhere else to go in the traditional financial system due to their low credit scores. For instance, in Enova’s application to the Chicago Fed, it suggested that the acquisition would allow it to lend to “underserved” consumers and businesses, using the phrase 15 times.

In a statement to Money, OppFi mirrored that framing. “Our objective is to responsibly expand access to credit for underserved consumers nationwide,” a spokesperson says.

Not everyone is buying that argument.

'Risky, unsafe and unsound'

Enova and OppFi’s applications have garnered swift attention from consumer advocates. NCLC recently filed comments, undersigned by more than 120 consumer, legal and civil rights groups, urging regulators to deny OppFi’s application.

Some government officials like Sen. Elizabeth Warren, D-Mass., and Illinois Attorney General Kwame Raoul have been pushing regulators to oppose the applications, too.

“If high-interest lenders like OppFi become national banks, strong state laws … would be preempted,” Raoul’s office tells Money in a statement. “It is critical the relevant federal banking regulators protect consumers by denying these bank charters and preserving state autonomy.”

On Aug. 5, Raoul led 18 state attorneys general in a letter to the Fed and the OCC officially opposing OppFi’s application.

“OppFi should not be granted a national bank charter because it targets vulnerable consumers with risky, unsafe and unsound loans that cause more financial harm,” Raoul said.

In a response to the letter shared with Money, OppFi fired back.

“It’s unfortunate that a group of politically motivated AGs chose to issue a poorly researched letter that is unsupported by the facts, attacking companies focused on providing credit access to Americans in need,” a spokesperson says.

It’s not clear when the Fed and the OCC will decide on the applications, and the regulators did not respond to Money’s request for comment.

For Calhoun at the Center for Responsible Lending, the stakes are clear. An approval would lead to a normalization of three-digit APRs like the one Patrick is struggling with years later with no end in sight. He says it would not only open the floodgates to other fintech lenders that want to become banks — it would also push current national banks to ratchet up their APRs to compete with them.

He worries interest rates could rise across the board, potentially sparking a Great Recession-like default crisis in an already shaky economy.

“This is not an incremental change,” Calhoun says. “This is a let’s-blow-up-existing-standards change.”

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