A recent article by Anne Fleming, Associate Professor of Law at Georgetown University, in which she pointed out the follies of a 36% rate cap, and how such caps tended to harm those they were intended to help, caused us to investigate further how the learned professor had acquired such wisdom and what else she might have to say on the subject.
It turns out to be quite a lot. Last year she published a book through Harvard University Press entitled City of Debtors, in which she examined the history of what she calls “fringe finance” and of the various attempts to regulate and control it through the lens of the city of New York, where many of these battles were first fought.
It is a fascinating tale of bad and good actors, good and bad products, zealous and overzealous activists, some aiming to help and protect consumers, others merely to harm business, even if it leaves poor borrowers without access to legal, safe, regulated loan products.
One issue in particular deserves attention, because it remains topical. The founding members of what is now the American Financial Services Association (AFSA) helped to author and pass bills that put in place the first rate caps of 36% APR (or similar) more than a century ago. One thing she points out is that virtually no loans were made at those rates under $75, which would be the equivalent of about $1,500 today.
In other words, there was never a time when 36% APR was an adequate or attractive rate for small dollar credit. Not even in 1916. Which makes it even less reasonable to think it would be sensible in an era with so many new costs of doing business, which could not even have been imagined back then.
NILA commends Professor Fleming for her work and would recommend her book to anyone seriously interested in this fascinating and important subject.