CU, Banking Trade Groups Fighting 36% Loan Interest Rate Cap Legislation

Credit union and banking trade groups are asking Congress to ignore proposals to impose a 36% fee and interest cap on loans made by financial institutions.

“The proposed 36% fee and interest cap would make it more difficult for many consumers to obtain credit, thereby harming the very consumers the legislation seeks to protect. Congress should reject these legislative measures,” the groups, including the Credit Union National Association, the National Association of Federally-Insured Credit Unions, the American Bankers Association and the Independent Community Bankers of America, wrote, in a letter to the Senate Banking Committee.

That committee is scheduled to hold a hearing on the 36% fee and interest cap on Thursday. Richard Williams, president/CEO of the Essential Federal Credit Union is among the witnesses scheduled to testify. Essential, with headquarters in Baton Rouge, La., has assets of about $163 million.

A group of Democratic senators has introduced legislation that would cap loans at the 36% Annual Percentage Rate level.  In introducing the legislation, Democratic Sens. Sheldon Whitehouse of Rhode Island, Dick Durbin of Illinois, Jeff Merkley of Oregon, and Richard Blumenthal of Connecticut noted that the federal Military Lending Act already has a 36% cap for loans marketed to military service members and their families.

 “This bill would impose sensible limits to help end the inescapable cycle of debt too many Americans currently face,” Whitehouse said. “In the long run, we need to restore states’ rights to set usury limits and protect home state consumers from lending abuse.”

The National Credit Union Administration already imposes an 18% cap on most credit union loans and a 28% cap on loans modeled after the agency’s Payday Alternative Loan Program. However, the credit union trade groups are siding with the bankers on the issue.

The groups said that the impact of the proposal would extend far beyond payday lenders and would include credit cards and overdraft lines of credit.

“History has shown that fee and interest rate caps reduce access to credit, especially for those with no or marred credit histories,” the groups wrote. “They also limit consumer choice and shrink competition.”

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