New Poll Finds Vast Majority of American Adults Think Lenders Should Be Allowed to Charge More than 36 Percent APR on Short-Term Loans; Believe Underbanked Consumers Deserve Credit Access

According to a new survey conducted by Morning Consult on behalf of the Online Lenders Alliance, a strong majority (66 percent) of American adults believe that the maximum amount lenders should be allowed to charge for a two-week loan of $100 far exceeds the 36 percent annual rate cap proposed in Congressional legislation and promoted by consumer groups. Furthermore, after learning that more than 90 million Americans are either underbanked or credit-challenged, two-thirds of adults (69 percent) think it is important that underbanked consumers have access to loan products.

When asked what is the most the government should allow lenders to charge adults wanting to borrow $100 with a two-week repayment period, 15 percent of adults said $2.00—a 52 percent interest rate when annualized. An additional 15 percent said $5.00 should be the maximum amount allowed (130 percent APR). Sixteen percent of adults said $10.00 should be the maximum amount permitted (261 percent APR).

An additional three percent said $15.00 (391 percent APR), six percent said $20.00 (521 percent APR), two percent said $25.00 (652 percent APR), two percent said $30.00 (782 percent APR), two percent said more than $30.00, and five percent said there should be no limit to what lenders can charge.

“This survey found what those of us who are involved in this industry have known all along: APR is a misleading metric to evaluate the true cost of short-term, small-dollar loans,” said Mary Jackson, Online Lenders Alliance CEO. “These financial products are lifelines to millions of savvy, creditworthy Americans who need credit access but are turned away by banks and other institutions. That’s why more than two-thirds of adults support efforts to provide credit access to underbanked or credit-challenged consumers.”

“Furthermore, this survey shows that most Americans understand that a 36 percent rate cap will cut off access for financially underserved Americans by making it impossible for lenders to even cover their compliance costs when offering these forms of credit,” Jackson continued. “And more than half of consumers support lenders taking into consideration borrowers’ credit history when determining loan pricing.”

In order to fall under the 36 percent APR cap proposed in some Congressional legislation, lenders offering a two-week loan of $100 would only be able to charge $1.38 in fees and interest.

In addition to this survey of consumers, a recent study by Federal Reserve economists found that “with fixed costs being large relative to loan amount, smaller loans require higher interest rates than larger loans.” That same study also found that interest rate caps “have often restricted availability of credit.”

Other findings from the Morning Consult survey include:

  • When looking for a loan or cash advance, online non-bank lenders are the fifth most popular option behind banks (both brick-and-mortar and online only), check cashing stores, or withdrawing from retirement accounts.
  • Consumers who have obtained a loan or cash within the most recent 12 months are more likely to support higher limits on what the government should be allowed to charge.
  • The use of non-bank lending services rises as credit score tiers decrease (i.e. two percent of consumers with excellent credit have used an online non-bank lender within the last 12 months while nine percent of consumers with poor credit have).
  • Americans strongly support expanding credit access for unbanked or underbanked consumers and strongly support lenders basing loan pricing on a consumer’s credit history.

The poll was conducted between June 29 and July 10, 2020 among a national sample of 10,999 adults. Interviews were conducted online and the data were weighted to approximate a target sample of adults based on age, educational attainment, gender, race, and region. Results from the full survey have a margin of error of plus or minus 1 percentage points.

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