Legislation that would cap all fees and interest at 36% would make it more difficult for many consumers to obtain credit, CUNA and other organizations wrote Senate Banking, Housing, and Urban Affairs Committee leadership Friday. The letter was sent for the record of a committee hearing on legislation extending the Military Lending Act’s all-in 36% rate cap for consumers.

“Proponents believe a cap on fees and interest would help consumers, especially subprime borrowers with less-than-perfect credit histories, by limiting what they pay on payday loans and other less-regulated short-term credit. In reality, its impact would extend far beyond payday lenders to the broader consumer credit market to cover affordable small dollar loans (including “accommodation” loans) that depository institutions are being encouraged to offer, credit cards, personal loans, and overdraft lines of credit,” the letter reads.

“As a result, many consumers who currently rely on credit cards or personal loans would be forced to turn elsewhere for short-term financing needs, including pawn shops, online lenders—or worse—loan sharks, unregulated online lenders, and the black market,” it adds. “A 36% rate cap, however calculated, will mean depository institutions will be unable to profitably offer affordable small dollar loans. For a loan product to be sustainable, depository institutions must be able to recover costs.”

CUNA notes that rate caps historically reduce access to credit, especially for those with no or marred credit histories.

“We urge you to oppose pending fee and interest rate cap legislation 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 depository institution products for short-term financing needs,” the letter reads. “Fee and interest rate caps will also discourage development of innovative products, especially those designed for the under-served market.”