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NAFCU and other financial services trade groups sent a joint letter to the U.S Senate on Tuesday opposing Sen. Jack Reed’s, D-R.I., Predatory Lending Elimination Act. The legislation would impose a limitation to fees and interest charged on consumer loans through an all-in national rate cap of 36 percent, preventing lenders the ability to appropriately assess borrower risk. While federal credit unions are subject to a federal usury cap under the Federal Credit Union Act, the national rate cap proposed in the legislation would be calculated differently, potentially impacting credit union products.

“A 36 percent annual percentage rate (APR) cap, however calculated, will mean financial institutions will be unable to profitably offer affordable small dollar loans to consumers,” wrote the groups. “For a loan product to be sustainable, lenders must be able to recover costs. Costs include not only the cost of funds availability, but also costs related to compliance, customer service, IT, underwriting, administration, defaults, and, most notably – losses.

“…We urge opposition to this fee and interest rate cap proposal because it will reduce access to credit for millions of consumers, particularly subprime borrowers who rely on affordable small dollar loans, credit cards, and other products for short term financing needs. This fee and interest rate cap would also discourage development of innovative products, especially those designed for the underserved market,” the groups concluded.

Read the full letter.

NAFCU and other financial services trade groups have previously advocated in opposition to this and sent a joint letter in September when it was introduced as an amendment in the Senate. NAFCU will continue to advocate against harmful policies that will restrict consumers’ access to safe and affordable credit.