CBCI Report Finds Rate Caps Harmful
This week, the Congressional Black Caucus Institute’s (CBCI) 21st Century Council published its 2022 Annual Report, which addresses a variety of major policies and regulations currently affecting the United States, including topics focused on access to consumer credit.
Specifically, the report highlighted the importance of maintaining a financial marketplace that allows Americans to access small-dollar credit, especially for borrowers who may have a non-prime credit score (credit score below 670) and are seeking affordable and predictable types of credit products.
Most notably, the report cited “proposals to protect consumers from predatory practices through a 36% rate cap would cause more harm than help by limiting consumer access to credit.” (p. 65).
The structure of a loan is best judged by its quality, affordability, and soundness, not its “all-in” APR calculation. By designing financial products based on each customer’s unique circumstances, such as providing longer-term repayment schedules, assessing consumers’ ability to repay, limits on fees, and reporting to credit bureaus, consumers have an opportunity to find an economic solution that fits their specific financial needs. AFSA has advocated for this approach at both the federal state levels for years and will continue to in the future.
Also included in the CBCI’s 21st Century Council Annual Report are the advantages of intense competition for consumers trying to own a vehicle at a low price in the auto finance marketplace. (p. 72).
By having “multiple sources of financing for automobile purchasing,” such as vehicle finance companies, captive finance companies, credit unions, and banks, the availability of credit increases, and consumers can find more affordable vehicle loan products.
The report also noted some vehicle finance organizations have developed financial education programs targeted at the car buying and leasing process. AFSA partners with the National Association of Auto Dealers on AWARE, or Americans Well-informed on Automobile Retailing Economics, which works to build a greater understanding among consumers about how auto financing works.
AFSA applauds the Congressional Black Caucus Institute’s 21st Century Council 2022 Annual Report citing the benefits of a responsible small-dollar credit for consumers and for encouraging more market competition in the vehicle finance industry.
March 10th, 2022
