Adoption of a 36% “all-in” interest rate cap would have a “seismic” impact on credit cards and small-dollar loans, CUNA wrote to the Senate Banking, Housing, and Urban Affairs Committee Thursday. The committee conducted a hearing on extending the 36% rate cap for members of the military to everyone.

“Adoption of a 36 percent all-in cap will essentially require lenders to offer larger, longer duration loans because these loans are ‘easier’ to fit under the cap precisely due to their increased size and duration,” the letter reads. “This effectively encourages borrowers to take on more debt or, for many borrowers with lower creditworthiness, push them out of the market for small dollar credit altogether.”

The letter adds that credit unions have seen firsthand the harms caused by high-cost payday loans and underregulated lenders, and support efforts to curb these abuses.

“Because credit unions tailor products to meet the unique needs of their members, there are many other consumer-friendly credit union products that would also be affected or eliminated by a 36% all-in rate cap as proposed in the legislation,” the letter reads. “Credit unions’ propensity for transparency and fairness is reinforced by their not-for-profit, democratically controlled structure. This accountability culture and member-first ethos are the reasons why credit unions – both state and federal charters – are widely considered to be pro-consumer alternatives to high-cost payday lenders.”

CUNA sent the letter in conjunction with the National Association of Federally Insured Credit Unions.