EBay Inc. is facing a probe by the Consumer Financial Protection Bureau (CFPB) over a loan program that mimics a structure used by high-interest lenders to evade state rules before the practice was stamped out by regulators.
The program, called Bill Me Later, is a service of the online marketplace’s PayPal unit that relies on Salt Lake City, Utah-based Comenity Capital Bank to make loans that are then purchased and managed by EBay, according to regulatory filings. Under federal law, banks can lend in any state without being licensed there or complying with local interest rate caps.
In the late 1990s, so-called payday lenders, which offer loans due when a borrower gets his or her next paycheck, linked with banks to lend in states where the practice is illegal or requires licensing. Payday loans can carry interest rates of as much as 521 percent, according to the consumer bureau.
Banks officially made the loans, which payday lenders then purchased. Regulators including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. stamped out the practice over the next decade, arguing it was a reputational risk to the banks.