Interest rate caps are popular – for good reason

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A editorial by American Financial Services Association CEO Bill Himpler recently challenged the Center for Responsible Lending (CRL) recent poll showing that 70 percent of voters approve of limiting interest rates on consumer loans to 36 percent interest. He also disputes the use of an annual interest rate to ensure borrowers understand the cost of a loan. Let’s get it straight.

The results of the survey, as well as adoption of voting initiatives, suggest broad all-party support for the idea that exorbitant interest rates undermine the wealth of communities, and capping rates at no more than 36% annual interest protects people from predatory lending. About 100 million Americans live in States with interest rate caps of 36% or less that keep payday lenders and car title lenders out. Most states rate caps on installment loans as well.

As stated in the recent CRL research, two years after a 2016 voting initiative to cap rates at 36% annual interest, Republican voters in South Dakota overwhelming opposition efforts to roll back the fee cap, and said they would be less likely to support a candidate for a position who attempts to defeat that cap. No bad direction here, as voters lived with and still support the results of the rate cap.

In 2018, more than 77% of Colorado voters chose to cap annual interest rates at 36%, even after previous changes in state law that ended some abusive practices but allowed loans Long-term payday loans (ie installment payday loans) thrive at average rates. 129%. No sleight of hand here like Colorado voters had direct experience with long-term payday loans and inadequate reforms – and chose a 36% rate cap instead.

One more point. Interest rates are important. Interest rates determine how much a borrower will pay for a loan, and this is an important part of affordability. For payday loans that trap borrowers in expensive long-term debt, multi-thousand dollar installment loans that can last for years and all other loans, expressing the cost of the loan in terms of an annual rate is more important than ever to facilitate a comparison of apples for consumers.

Abusive rates can cause borrowers to pay sometimes four times what they borrowed. Fortunately, voters understand why this is harmful, and 70 percent of registered voters Support capping payday and installment loan rates at 36%.

Fortunately, Congress has already taken steps to introduce a common sense, state-tested cap rate of 36% annual interest without anticipating states with lower caps. The Fair Credit Act for Veterans and Consumers – HR 5050 / S. 2833 – was presented by representatives Jesús “Chuy” García (D-Ill.) And Glenn grothmanGlenn S. Grothman Wisconsin lawmaker proposes bill to ban the teaching of critical race theory in DC schools The Hill’s Morning Report – Brought to you by Facebook – Masks: CDC green lights return to normal for vaccinated Americans (R-Wis.) To the House and Sen. Jeff MerkleyJeff Merkley This week: Senate faces infrastructure squeeze Bail for accused Capitol rioter was revoked after leaving lewd voicemails for probation officer Senate Democrats hit slowdowns with close-ups of expenses PLUS (D-Ore.) In the Senate. Chair of the House of Commons Financial Services Committee, Waters considering moving forward the bill this year.

The legislation follows recent moves by the Consumer Financial Protection Bureau (CFPB) to overturn a national rule designed to reduce the damage caused by unaffordable payday loans and car titles (unsurprisingly, voters also oppose this cancellation). As the CFPB, under its current leadership, decides whether it is on the consumer side or whether it wants to provide legal cover for unfair and abusive lending practices, we urge Congress to pass HR 5050, a cap of reasonable 36% rate designed to prevent worst-case abuse.

One thing is clear, we need more – not less – rigorous oversight by states, Congress, and the CFPB to prevent predatory lending. It really is that simple, and the public supports it.

Tom Feltner is Executive Vice President and Director of Research at the Center for Responsible Lending.

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