WASHINGTON—NAFCU, CUNA and other financial services trade groups have sent a joint letter to the U.S Senate in opposition to Sen. Jack Reed’s (D-RI) Predatory Lending Elimination Act.
The financial trade groups position runs counter to that of consumer groups, which have praised the bill.
The legislation seeks to impose a limit on the fees and interest charged on consumer loans through an all-in national rate cap of 36%. According to the trade groups, such a cap would prevent lenders the ability to “appropriately assess borrower risk.”
In addition, while federal credit unions wouldn’t be affected by the bill, as they are subject to the federal usury cap of 18%,, the trade groups argue a national rate cap proposed in the legislation would be calculated differently, potentially affecting credit union products.
‘Must be Able to Recover Costs’
“A 36% annual percentage rate (APR) cap, however calculated, will mean financial institutions will be unable to profitably offer affordable small dollar loans to consumers,” wrote the groups. “For a loan product to be sustainable, lenders must be able to recover costs. Costs include not only the cost of funds availability, but also costs related to compliance, customer service, IT, underwriting, administration, defaults, and, most notably – losses.
“…We urge opposition to this fee and interest rate cap proposal 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 products for short term financing needs,” the letter continued. “This fee and interest rate cap would also discourage development of innovative products, especially those designed for the underserved market.”
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