This week, several Senators Durbin (D-IL), Merkley (D-OR), Blumenthal (D-CT) and Whitehouse (D-RI) introduced legislation to impose a 36% Annual Percent Rate cap on consumer loans. The bill, which has no Republican co-sponsors, remains as misguided and irresponsible as it was when it was introduced in 2021. In touting the proposal, the Senators claimed that state-based rate caps, as well as the 36% rate cap imposed under the federal Military Lending Act, were helping consumers, statements that simply are not accurate.

A press release repeating misinformation over and over again does not make the information accurate, in the same way that consumer protection and access to credit cannot be improved by flawed proposals based on flawed information.

It isn’t just the lack of bipartisanship that should doom this bill; there is significant public opposition to rate caps.  As well, independent academic and studies over the past several years have confirmed that rate caps  do not help consumers who need credit the most, including in states like Illinois.  Rate caps drive away responsible and ethical lenders, leaving consumers who are underbanked or who have subprime credit scores with few legitimate options for their credit needs.

Further, surveys of current military personnel indicate the Military Lending Act’s rate cap achieved no significant protections for active servicemembers and their families, did not improve their credit or financial standing and in many cases hindered their ability to access the credit they needed. To date, the Defense Department has not released any data to indicate its MLA policies have worked. Perhaps more troubling: the Defense Department has never disputed the surveys and studies regarding the MLA’s harmful effects on active military servicemembers and their families.

In a time of ongoing economic uncertainty, when Washington is trying to lower the day-to-day costs of essential items as well as interest rates that increase the costs for consumers on credit card, vehicle, and home loans, regressive proposals like the 36% rate cap are unhelpful for American consumers and especially those who have limited access to credit in the first place.

AFSA sent a comment letter to Senator Durbin voicing our strong opposition to the bill and remains committed to working with Congress and the Biden Administration on pro-consumer credit policies that both protect consumers and expand access to credit for all.