CBA Opposes Legislation Threatening Access To Credit For American Families

November 30, 2021
Billy Rielly

Consumer Bankers Association (CBA) President and CEO Richard Hunt today released the following statement in opposition to legislation re-introduced by members of the House of Representatives which would limit consumers’ access to credit by imposing an arbitrary cap on interest rates, harming low- and moderate-income communities most:

“For millions of American families, small dollar loans, credit cards, and other innovative products provided by banks provide affordable credit options they rely on to meet their financial needs, including covering emergency expenses. Imposing arbitrary, one-size-fits-all caps on fees and interest rates will do nothing but limit consumer choice and competition, instead driving borrowers toward predatory lenders outside of the well-regulated, well-supervised banking industry. Simply put, a 36% rate cap, however calculated, will harm the very people we are all working to protect.”

Background

CBA has encouraged lawmakers to conduct an extensive and thorough study of any proposal for a nationwide binding interest rate cap before being considered by Congress and take into account the negative consequences for individual borrowers and families, including the following: 

An all-in APR is a flawed tool for measuring the true cost of a loan

  • Consumers are better off with regulations focused on the dollar cost of the loan and flexible policies that allow for a range of loan options to suit consumers’ needs. An all-in APR captures items that should be excluded from APR calculations such as extended warranties, services, or annual fees.

Interest rate caps harm the very people they’re intended to help

  • Empirical data shows rather than protecting consumers, interest rate caps harm borrowers with high debt burdens by reducing access to credit, which can increase loan defaults and limit access to emergency credit.

Interest rate caps do nothing to address demand for credit, particularly small-dollar and short-term loans

  • They only reduce the supply of these loans. Borrowers will have fewer options and be forced to seek credit through other lesser regulated sources without the consumer protections guaranteed at any bank.

There is no evidence that APR caps make consumers better off or save them money

  • Instead, APR caps often mean lenders are required to increase the base loan amount, or extend the life of the loan, to recoup the fixed costs of the loan.

CBA Advocacy

In July, CBA General Counsel and Senior Vice President, David Pommerehn testified before the U.S. Senate Banking Committee on the impact new caps on interest rates would have on consumers’ access to credit. Commenting on their effect on banks’ ability to provide access to safe and affordable loan products for consumers, he said: 

“A fundamental aspect of lending and a cornerstone to prudent banking practices is a bank’s ability to accurately price risk. Expanding rate caps to all consumers and many important loan products will ultimately disrupt banks’ ability to appropriately price risk, increase the cost of credit, and limit its availability. Borrowers with troubled credit histories will be most affected by any limitation on banks’ ability to price risk, reducing the amount of available loan offerings that are tailored to meet their financial needs.”

Ahead of the July Senate Banking Committee Hearing, CBA and other trades sent a letter to U.S. Senate Banking Committee Chairman Sherrod Brown and Ranking Member Pat Toomey, urging Congress to oppose any fee and interest rate cap legislation, stating if they take effect:

“Many consumers who currently rely on credit cards or personal loans 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.”

To watch Pommerehn’s testimony before the Senate Banking Committee, click HERE.

To read Pommerehn’s full written testimony submitted to the Senate Banking Committee, click HERE.

To read the full joint trades letter sent to the Senate Banking Committee in July, click HERE.