ARLINGTON, Va.–Credit unions and various consumer groups often align on issues, but not always, as is the case on legislation before Congress that would create a national interest rate cap of 36%.
One CU economist says there’s good reason CUs oppose such a cap.
As CUToday.info reported here, the Consumers Fair Credit Act was introduced in the Senate by Jack Reed (D-RI), Sen. Jeff Merkley (D-OR), Sen Sherrod Brown (D-OH), and Sen. Chris Van Hollen (D-MD), along with seven other original co-sponsors. The bill has the backing of the National Consumer Law Center.
But there are issues proponents of the legislation may not fully understand, according to Curt Long, NAFCU’s chief economist.
“These loans can be very expensive to originate,” said Long. “There is the manpower it takes to originate the loan. Then there is the cost to service it and the risk of the loan defaulting. When take that all together they can be very expensive.”
Putting an interest rate cap in place will not have the effect supporters believe it will, said Long, even if it does eliminate the three-digit rates some payday loan borrowers fall victim to.
“With an interest rate cap you effectively limit the supply of the product,” Long stated. “I think the way CUs are structured, their history, who their owners are, they have all the incentives they need to provide those loans at a great value to their members. The concern is the imposition of caps artificially limits the market.”
Eviction Moratoriums
With the expiration of many of the national eviction moratoriums, Long said he is not expecting credit unions to see much fallout beyond “pockets of issues.”
As for renters who may be losing their homes, Long noted that similarly he has not heard much from credit unions on the issue, but also conceded “it is a bit of a blind spot, which is why policymakers are concerned about it.”