Minnesota capped loan interest rates but some banks still charge 150%

Christine Westbrook’s life is unrelenting. When she’s not working a full-time job as a medical assistant, the Hastings mother is busy supporting her five children. After she fell on hard financial times in 2019, Westbrook desperately applied for a loan online. 

She was approved the same day for $1,000 but with a soaring interest rate of nearly 160%, which could have cost her almost $800 more than she originally borrowed. 

"I’d rather just have been denied the loan than to go through what I went through," Westbrook said. 

Despite recent efforts in Minnesota to guard against predatory lending by capping interest rates on certain loans at 50%, out-of-state companies are using a loophole in federal law to charge rates well above those caps.

Loan documents and corporate financial records reviewed by the FOX 9 Investigators show companies are regularly charging triple-digit interest rates. One loan came with a rate of nearly 350%.

"I think it’s fair to call any triple-digit interest predatory," said Minnesota Deputy Attorney General Jessica Whitney.

Whitney said such loans are like a "concrete life preserver."

"They look like they’re going to help people but at triple-digit… at 150, 200, 400 and 600%, what we have seen – that doesn’t help people," she said. 

The Lender Loophole 

Westbrook applied for her loan online through OppFi.

The financial tech company issued 17,000 loans in Minnesota last year alone thanks to proprietary artificial intelligence that allows the company to "instantly" approve applications, according to corporate financial records.

"I applied for it and I got approved the same day," Westbrook said. "I was really shocked because it was really quick." 

OppFi is physically based in Chicago, but partners with a state-chartered bank in Utah where there are no limits on interest rates. 

This allows OppFi to charge triple-digit rates even when customers like Westbrook live in states where interest rates are supposed to be capped.

"The rates, we think, are justified based on the risk," said Joe Rubin, senior vice president of OppFi’s corporate communications. "Even though the rate may be high, the loans that we facilitate are transparent, so there are no fees, no late fees, no insufficient check fees." 

But at least one out of every three loans OppFi facilitated nationally ended in default in 2021, according to the company’s most recent annual report. 

"These are high-risk loans and [the banks we work with] are willing to risk the higher default rates that we've seen in exchange for being able to provide credit access to more consumers,Rubin said.

‘Rent-a-bank’ Loans

OppFi’s financial filings reveal most of its $351 million in revenue in 2021 was almost entirely dependent on what critics call "rent-a-bank" loans.

"They are renting a bank partner to export interest rates above 150% to Minnesotans through the internet," said Anne Leland, who is executive director of Exodus Lending.

The nonprofit helps consumers like Westbrook get out from under small-dollar loans that can quickly turn into overwhelming debt.

The FOX 9 Investigators analyzed more than two dozen rent-a-bank-style loans. Most Minnesotans borrowed an average of $1,000 at an average rate of 190%, which is almost four times the state cap.

"Some folks might look on here and think that this is a good deal and not understand that this is a raw deal," Leland said. "This is predatory, this is stripping wealth instead of protecting and building wealth."

One loan for $1,400 included an annual interest rate of 348%. At that rate, it could cost the borrower more than $10,000.

"We’re seeing that folks who are being targeted are the majority of our customers are low-income communities of color," said Leland.

Closing the Loophole 

Companies like OppFi are facing legal backlash for their tactics.

In the District of Columbia, the attorney general sued the company in 2021, accusing it of "predatory" and "deceptive" practices. OppFi denied the allegations but agreed to pay a $1.7 million settlement and refund affected customers. 

In Minnesota, the Attorney General’s Office is pushing new legislation that would simply close the "rent-a-bank" loophole.

"What this bill would do is make those state banks that are based outside of Minnesota and credit unions subject to Minnesota law," said Whitney, the deputy attorney general, adding that it would make it easier to protect consumers on future loans. 

Technically speaking, HF 3680 would have Minnesota "opt-out" of the federal Depository Institutions Deregulation and Monetary Control Act, or DIDMCA, which out-of-state lenders have used for decades to evade state interest rate limits. 

However, there is significant pushback from the financial tech industry.

"The unfortunate impact to Minnesotans will be felt immediately and the true negative impact will last for years to come," said Phil Goldfeder, CEO of the American Fintech Council during testimony on the bill earlier this month.

"It wouldn't be good for the consumer and it wouldn’t be good for Minnesota generally," Rubin said, adding the measure would almost certainly be challenged in the courts. 

Deputy Attorney General Whitney conceded "Yes, there will be fewer options, but there’ll be fewer bad options."

As for Christine Westbrook, she wishes there had been better guardrails in place before she ever took out that loan. 

"It was about the livelihood of me and my children," Westbrook said. "I was vulnerable, broke and needed it – so it was like a stranger trying to get a kid with a candy bar."