What payday lenders really fear

Since a federal-law loophole already allows payday lenders to do business openly in Pennsylvania, why are leading purveyors of these ultra-high-rate loans pushing the state legislature to enact a payday-lending law?

Why, in other words, would they want this small measure of added legitimacy, especially if the price is more regulation and oversight by the state Department of Banking?

State Rep. Kathy Manderino has been asking herself that same question.

“When’s the last time an industry came to government and said regulate me, regulate me? They just don’t do it,” Manderino says.

Manderino is pretty sure she knows the answer. The key, she says, lies in growing resistance among federal regulators to so-called “rent-a-bank” arrangements — the kind that enable Cash Today in Philadelphia to claim that it isn’t making one- or two-week loans to the borrowers who visit its stores. Some bank in Delaware is.

Of all the federal banking regulators, only the Federal Deposit Insurance Corp. still allows rent-a-bank arrangements. And the FDIC has recently done some clamping down of its own.

The FDIC recently warned County Bank of Rehoboth Beach, the lender behind Cash Today, that it may put its depositors at risk by allowing out-of-state payday lenders to make loans without adequate bank oversight.

The FDIC also issued guidelines that impose new limits on payday loans — stricter limits than those in the legislation being pushed in Pennsylvania. (To see the FDIC guidelines on payday lending, click here.)

Payday lenders are plainly worried that the new rules will cut into their profits. But their ultimate fear is that the FDIC will join other regulators and just say no to rent-a-bank payday loans. That would drive them out of states that have declined to give their business a safe harbor, or underground — back, some would say, to their loanshark origins.

Manderino answers her own question: “Why do payday lenders want the state of Pennsylvania to regulate them? Because they’re afraid that the FDIC will put a stop to their business.”