Black Caucus Institute on Small Dollar Lending and Rate Caps

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Black Caucus Institute on Small Dollar Lending and Rate Caps

The Annual Report of the 21st Century Council, a working group of the Congressional Black Caucus Institute (CBCI), contains some important observations about access to credit and small dollar lending. It also provides  policy recommendations that are broadly in line with NILA’s position on consumer protection and wide access to safe forms of credit.

The 2022 Annual Report was released last month, and “addresses the nations greatest concerns. From infrastructure to financial security….” A twenty-page section on Financial Services covers a number of issues, from housing costs, through electronic payments, to data security and privacy. It also covers Access to Credit, pointing out that:

“The financial markets generally work well for people at the high end of the income scale, [providing] easy credit access with strong consumer protections for high-income individuals with high credit scores… However, this market does not provide many choices for consumers who do not meet these credit thresholds.”

The report also says that, “…not every lender that offers a high-interest loan is predatory,” and “…a growing number of small dollar lenders are filling the gap with better solutions for these consumers….” It recommends the following responsible credit features:

  • No fees, including no prepayment penalties or NSF fees
  • Underwriting Loans to help ensure the customer can afford payments that pay down the Loan principal over time
  • Reporting to credit bureaus to help consumers build credit
  • Treating their customers with respect

 These are all attributes of Traditional Installment Loans offered by NILA members.

The report also criticizes the use of  36% APR caps, saying:

“Proposals to protect consumers from predatory practices through a 36% rate cop would cause more harm than help by limiting consumer access to credit.”

Instead, the report says, policymakers should consider enacting policies that stop predatory practices, and enable consumers to have access to affordable, quality credit, such as:

  • Required assessment of ability to repay
  • Limitations or prohibitions on fees that can be charged, including no NSF fees or prepayment penalties
  • Reporting positive repayment to credit bureaus, allowing consumers to build credit.

Again, these are all features of the Traditional Installment Loans offered by NILA members.

The CBCI 21st Century Council Annual Report can be viewed HERE.

SOURCE: CBCI 21st Century Council