Following the announcement that the Colorado Attorney General had reached a settlement in two lawsuits involving banks’ collaboration with fintech service providers, Online Lenders Alliance CEO Mary Jackson issued the following statement:
“As service providers to banks, fintech firms can help expand choice for financially underserved consumers, giving them more options to choose from when looking for a solution to their unique financial needs. Today’s settlement by Colorado’s Attorney General is in line with the recent True Lender Rule issued by the Office of the Comptroller of the Currency (OCC) and creates a model for True Lender to be the standard in states as we move forward.
“While we are supportive of the settlement in general, we are gravely concerned about the 36 percent APR cap that is included in it. We saw the devastating impact of a 36 percent rate cap when it was forced onto the military through the Military Lending Act. According to a 2017 study by the U.S. Military Academy at West Point, access to the very products restricted by a rate cap improves credit outcomes for servicemembers, and the alternatives could be equally or even more costly. An additional study done last year by HarrisX found that a majority of active duty military households have been denied credit due to borrowing restrictions imposed as a result of the Military Lending Act.
“Finally, a study released just this month by the Federal Reserve found that because of high fixed costs when making a loan of any amount, the breakeven APR for small dollar loans is substantially higher than loans of higher amounts.”
“A $594 loan required a 103.54 percent rate, and a $1,187 loan required a still high 60.62 percent rate.” That study also reaffirmed, in line with previous studies and our experience, that laws limiting the rate of interest that lenders may charge also restrict credit availability.
“When banks and fintech firms team up, they are able to leverage proprietary technologies to offer new products and services that neither body can offer on their own. In so doing, they extend credit to millions of Americans who have nonprime credit scores and are thus excluded from many traditional credit sources. Sadly, at a maximum 36 percent APR, most institutions—even when partnering with financial technology firms—cannot offer these financial products to those who are demanding them.”