Bankers Declare Opposition to Proposed 36 percent APR Caps

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Bankers Declare Opposition to Proposed 36 percent APR Caps

A July 23 letter to the US Senate Banking Committee from a number of leading bank and credit union groups has declared unequivocal opposition to proposals under consideration for a 36 percent “all-in” APR cap on consumer loans.

This lays to rest once and for all the misguided notion that bank and credit unions support such catastrophic measures and would fill the void left by those traditional installment lenders unable to operate under such a regime.

The letter, from the American Bankers Association (ABA), the Credit Union National Association (CUNA), the Independent Community Bankers of America (ICBA) and five other groups, noted that:

“The proposed 36% fee and interest cap would make it more difficult for many consumers to obtain credit, thereby harming the very consumers the legislation seeks to protect. Congress should reject these legislative measures.”

It goes on to say that,

“[The impact of a cap on fees and interest] would extend far beyond payday lenders to the broader consumer credit market to cover affordable small dollar loans…. As a result, many consumers … would be forced to turn elsewhere for short-term financing needs, including pawn shops, online lenders—or worse—loan sharks, unregulated online lenders, and the black market.”

The letter further points out that the “all-in’ Military APR (MAPR) “overstates the cost of credit” because it is “mathematically flawed”. It ends with a clear message to congress, saying:

“We urge you to oppose pending fee and interest rate cap legislation because it will reduce access to credit for millions of consumers, particularly subprime borrowers who rely on affordable small dollar loans, credit cards, and other depository institution products for short-term financing needs. Fee and interest rate caps will also discourage development of innovative products, especially those designed for the under-served market.”

 The letter is available for viewing at the Bank Policy Institute’s (BPI) website.

SOURCE: Banking Trade Groups