Congressional Democrats are continuing their campaign to limit the ability of banks to lend to Americans who are most in need. This week, the Senate Banking Committee, under the leadership of Senator Sherrod Brown of Ohio, held a hearing entitled “Protecting Americans from Debt Traps by Extending the Military’s 36% Interest Rate Cap to Everyone.”
This kind of attack against consumer choice is not new; President Biden recently signed into law S.J.Res 15 which repealed the Department of the Treasury’s True Lender Rule which allowed banks to partner with financial technology firms to increase competition in the lending market and extend credit opportunities to all Americans.
- The 2006 Military Lending Act prohibits banks from charging servicemembers and their families more than 36 percent interest rate on consumer loans.
- This week, Senator Jack Reed (D-RI) introduced the Veterans and Consumer Fair Credit Act, S. 2508, which would set a nationwide interest rate of 36% on consumer loans.
- Senator Dick Durbin (D-IL) also introduced the Protecting Consumers from Unreasonable Credit Rates Act of 2021, S. 2349, which would establish a national 36 percent cap on fees and interest on consumer loans.
- Last Friday, a group of financial trade associations wrote about the negative consequences that these bills would have on individuals seeking small-dollar loans.
- The letter states: “For a three month $500 loan, costs would generally amount to $55 which if charged to the consumer would equate to a 44% rate. Such a rate would be prohibited under the legislation. Indeed, the all-in 36% cap would prohibit a small dollar loan product offered by a large depository institution that the Pew Charitable Trusts called a “game changer” with “affordable payments.” Depository institutions could choose either not to offer small dollar loans or, to comply with the cap, increase the minimum amount of the loan, which would force consumers to borrow more than they want or are able to manage.”
- Paying $55 for a $500 loan is not unreasonable. In order for communities in need to have access to quick, affordable credit, lenders cannot be beholden to government-mandated interest rate caps.
Why it Matters
FreedomWorks recently highlighted this issue in a letter to Congress, stating “The Federal Reserve has warned that banks cannot make money on loans with an interest rate of at least 36 percent unless the loan is for several thousands of dollars. By capping interest rates, banks would be more incentivized to deny high-risk borrowers the opportunity to obtain a loan, while only serving those who are not the most in need.”
By pushing for a national 36 percent cap on fees and interest rates on consumer loans, Democrats and other supporters of this legislation would effectively be hurting the very same people they claim to want to help.
FreedomWorks will be tracking this anti-consumer choice campaign closely and will be encouraging members of Congress to oppose any efforts that seek to limit access to much-needed credit options.