One of the biggest challenges for traditional installment lenders in speaking to policymakers about industry regulation is explaining the nature of Annual Percentage Rates (APR).
Price caps that use APR for measuring the supposed cost of a loan have been, and still are, a common way for policymakers to attempt to crack down on less safe forms of credit such as payday and title loans. The one-size-fits all nature of this kind of regulation means it often affects traditional installment lenders, with negative consequences for consumers.
This is frustrating for us, because this kind of regulation is based on a fundamental misunderstanding of what APR is and what it can and should be used for. This means we must explain what is admittedly, a fairly abstract concept, time and time again.
Help in doing so comes in the form of a new project – a website laying out all of the the facts about APR and its usage. Aprfacts.org is a tool that can be used by anybody interested in teaching and understanding the nature of APR and its unsuitability as a measure of the true cost of a loan. The site contains much of interest, including video animation to explain key concepts. It makes the following key points:
APRs are NOT an Indicator of Cost in a Loan, Rather Lower Cost Loans Generally Have Higher APRs and Vice Versa
Nevertheless, Policymakers Will Often Try to Impose APR Caps That Simply Cut Off Borrowers’ Access to Safe, Affordable, State-Regulated Loans
With a Better Understanding of APRs, We Can Preserve Access to the Lowest Cost, Safest, and Most Affordable Loans
More at aprfacts.org.