Mitigating the economic effects of COVID-19 policy is the focus of much effort at the national level, including the worthy bipartisan and bicameral legislation, the Jobs and Neighborhood Investment Act. These bills, H.R. 7709 and S. 4255, direct billions in new investments to help low income and minority communities withstand the economic downturn caused by the pandemic and emerge from it with increased access to capital and new economic opportunities.
Unfortunately, both the House and the Senate bills include a provision that will have the opposite effect and actually decrease credit availability. To take advantage of the new funding programs, a CDFI or MDI must attest that it “does not own, service, or offer any financial products at an annual percentage rate of more than 36 percent interest,” as defined in the Military Lending Act (MLA).
This prohibition will cut off access to small-dollar loans. We have discussed elsewhere [LINK] and often [LINK], the inappropriateness of rate caps for non-bank loans and their effect on the availability of safe and affordable credit. Loans cannot be made sustainably at 36 percent APR (especially as the MLA defines it), so the rate cap acts not as a cap, but as a ban.
NILA strongly supports expanding individuals’ access to credit and we appreciate Senator Mark Warner (D-VA) and Congressman Gregory Meeks (D-NY) previous efforts to ensure this. In this case, Congress should remove the rate cap provision in H.R. 7709 and S. 4255, the Jobs and Neighborhood Investment Act of. Only by doing so, can policymakers ensure that the bill’s intent, to secure affordable access to credit for lower-income borrowers and underserved communities, is served.