Senate Hearing Highlights Rate Cap Concerns
This week, CEOs from some of the largest U.S. banks provided testimony before the House Financial Services and Senate Banking Committees regarding several issues, including a proposal from Senator Jack Reed (D-RI) to expand the Military Lending Act rate cap to all consumers. Several of the CEOs cautioned that while they supported the principle of the legislation, there is a need to ensure that it does not constrain regulated consumer credit.
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AFSA has previously highlighted independent, academic research that shows that the imposition of a 36% all-in rate cap in 2021 reduced the number of loans to subprime borrowers in Illinois by 36%. The number of loans to deep subprime borrowers saw an even more significant reduction by 57%. This research emphasizes the importance of a robust and competitive market for small-dollar credit, which bigger banks cannot always provide. Expanding the 36% all-in rate cap would have a disastrous effect on millions of Americans seeking reliable options for their credit needs, forcing them to borrow a higher amount, locking them into a longer repayment period, and resulting in overall higher costs to the consumers.
AFSA member companies continue to provide access to credit to Americans of all backgrounds and economic standing, filling an important role in the consumer lending market. Hardworking Americans faced with unexpected costs rely on cost-effective credit products so that they are not trapped in an endless cycle of debt. Current all-in rate cap proposals would push traditional installment lenders who provide safe and affordable consumer credit from the market, leaving consumers vulnerable.
September 23rd, 2022
