After U.S. Senators Jack Reed (D-R.I.), Jeff Merkley (D-Ore.), Sherrod Brown (D-Ohio), and Chris Van Hollen (D-Md.) introduced legislation that would eliminate access to credit for millions of Americans by expanding the Military Lending Act (MLA) and implementing an annual percentage rate (APR) cap of 36 percent on consumer loans, Online Lenders Alliance Executive Director Andrew Duke issued the following statement:
“This legislation would be a disaster for American consumers, especially those who use, demand, and depend on short-term, small-dollar credit products. It is alarming that this bill is being introduced when new survey research finds that nearly one-third (31 percent) of all adults—including half of all Black adults (50 percent)—have been denied credit when they needed it.
“Many of these borrowers earn working class wages and may have thin or poor credit. They have difficulty obtaining credit from conventional sources like banks or credit unions, and they can find a financial lifeline through fintech. Others simply enjoy the convenience and timeliness that these online products offer when financial needs arise. Regardless, the basic math dictates that smaller loans with a shorter duration have higher APRs when annualized out, making APR a misleading metric to solely evaluate the cost and fairness of these products. Denying consumers’ access to credit based on this flawed approach is unconscionable, and new data indicates that it will result in increased late fees, utilities being shut off, and even evictions.
“It is also worth noting that while the Senators introducing this legislation use the Military Lending Act as validation and basis for their legislation, survey research of the MLA’s impacts show that in practice, it has increased financial insecurity among servicemembers. This has resulted in the depletion of savings, dependency on relief societies or family for money, and leaving bills unpaid. Furthermore, a 2017 study by the U.S. Military Academy notes that alternatives to the types of loans that Senator Reed would seek to abolish ‘could be equally or even more costly.’
“There is ample evidence that shows many servicemembers’ financial situation has gotten worse since the enactment and expansion of the Military Lending Act. We should not be forcing the unintended consequences of the MLA onto American consumers at large.”