A proposed Senate amendment to limit the fees and interest charged on consumer loans through a national fee and interest rate cap of 36% would make it more difficult for many consumers to access credit, thereby hurting the very people it is meant to protect, the American Bankers Association and seven banking sector trade associations said today.
The amendment by Sens. Jack Reed (D-R.I.) and Jeff Merkley (D-Ore.) would attach the 36% cap to an unrelated military construction appropriations bill. In a joint letter to the two senators, the associations said the cap would have ramifications far beyond the payday lenders at which it is targeted, as financial institutions would be unable to profitably offer small-dollar loans to consumers. “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, or worse—loan sharks, unregulated online lenders and the black market,” they said.
Credit card customers would also be harmed by the cap, the groups said. “Including annual and other fees in the calculation will cause credit cards to exceed the cap, resulting in the elimination or reduction of popular and valued credit card features like cash back and other rewards. Such a cap will also inhibit innovative credit cards with non-credit features designed to attract underserved groups because even a nominal annual fee will result in an all-in rate that exceeds 36%.”