American Financial Services Association

Arbitrary Rate Cap Proposal Threatens Consumers

Blog Posts

Arbitrary Rate Cap Proposal Threatens Consumers

The U.S. House of Representatives this week is considering amendments to the National Defense Authorization Act (NDAA). Among the amendments is one offered by Rep. Jesus “Chuy” Garcia (D-IL) and Rep. Glenn Grothman (R-WI) that would impose the Military Lending Act’s rate cap of 36 percent on all Americans. Last year, Garcia and Grothman introduced this legislation; now they are trying to incorporate it into the NDAA, a bill that Congress must pass every year.

Arbitrary rate caps reduce consumer access to credit because many state-licensed and regulated finance companies, including vehicle finance companies, credit card issuers, and traditional installment lenders, will not be able to offer safe and structured loan options to hard-working Americans in the smaller amounts they need. Consumers may be forced to seek loans in larger amounts than they require, with the prospect of a higher default risk. As well, restricting access to credit for consumers, particularly low-income families and the unbanked, leads the most vulnerable groups to unregulated and illegal loan alternatives.

“Access to credit is a crucial resource that helps drive the U.S. economy,” said Ann Harter, Vice President of Congressional Affairs with AFSA. “Reducing credit options in a regulated marketplace when it is most needed in a time of economic uncertainty will prevent responsible consumers from building or repairing their credit history and future borrowing ability.”

July 15th, 2020 by