Representatives Glenn Grothman (WI-06) and Jesus “Chuy” Garcia (IL-04) today introduced companion legislation to S.2508 (the Veterans and Consumers Fair Credit Act) that would eliminate access to credit for millions of Americans by implementing an annual percentage rate (APR) cap of 36 percent on consumer loans. Online Lenders Alliance Executive Director Andrew Duke issued the following statement on the proposed legislation:
“Far too many consumers across the United States have difficulty accessing credit to meet their financial needs, and the legislation introduced today will only make it harder for them to do so. Rate caps like the one mandated in this bill restrict credit access and eliminate critical financial options for hardworking Americans, period.
“When Representative Garcia testified for this this bill in the Senate, he said: ‘Wages simply aren’t keeping up with the cost of living. All too often, working class families must turn to loans to fill the gaps.’
“Representative Garcia is entirely correct in identifying the need for small dollar loans but imposing a federal rate cap will not lower the cost of loans for the working-class families he wants to help – it will only lessen their access to credit. Experience has shown that APR caps lead to less credit and shifts consumers into harmful substitutes like overdrafts and late/missed bill payments.
“For further evidence, look no further than the very Military Lending Act (MLA) that the bill relies on as validation for this misguided policy. When the MLA restricted loans to servicemembers and their families, many servicemembers were denied access to non-traditional loans, forced into less favorable outcomes, and saw increased financial insecurity as a result.
“A 2019 survey found that a majority of military households had been denied loan products because of MLA. In fact, a 2020 survey found that 52% of active-duty military servicemembers “reported difficulty finding adequate loan options during the pandemic. A study by the U.S. Military Academy notes that the only remaining alternatives to the types of loans that a 36% rate cap would abolish ‘could be equally or even more costly.’ “It is clear that the MLA has made our servicemembers’ financial situations worse—not better. We should not force the unintended consequences of the MLA onto American consumers at large.”