A proposed bill to establish a nationwide cap on fees and interest on credit cards and consumer loans would have a devastating effect on access to credit for individuals and small-business owners, the American Bankers Association and seven financial sector associations said today.
The Protecting Consumers from Unreasonable Credit Rates Act (S. 2781) would impose a national “fee and interest rate” cap of 36%. The legislation is sponsored by Sens. Dick Durbin (D-Ill.), Sheldon Whitehouse (D-R.I.), and Richard Blumenthal (D-Conn.). In a letter to the sponsors, the associations pointed to studies showing that even modest government price controls raise costs rather than lower them.
A 36% rate cap on consumer loans will mean depository institutions will be unable to recover costs that enable them to sustainably offer affordable small-dollar loan products, they said. The same cap on credit card fees will result in tightened underwriting practices, lower credit lines and reduced cardholder rewards.
“This legislation, while intended to help consumers, will actually reduce access to credit for millions of consumers, particularly subprime borrowers who rely on affordable small-dollar loans, credit cards, and other depository institution products for short-term financing needs,” the associations said. “Fee and interest rate caps will also discourage development of innovative products, especially those designed for the underserved market.”
