CUNA and NAFCU wrote to senate leaders this week in opposition of a “minibus” amendment that would create an “all-in” annual percentage rate (APR) cap of 36%. The organizations note that the provision would have a “seismic” impact on small-dollar loans and credit cards.
“The adoption of a 36% 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. 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 reads. “In addition, while Payday Alternative Loans PALs are offered by 13.4% of federally chartered credit unions, they are merely one type of loan offered and do not reflect the diverse range of small dollar loan products offered at both state and federally chartered credit unions.
“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 this amendment,” it adds.
The letter notes that, as of December 2022, credit unions’ average interest rate for classic credit cards stood at 12.83% compared to banks’ average interest rate of 16.93%
“We recognize that there are legitimate concerns about abusive credit practices, and we applaud efforts to end discriminatory, predatory, deceptive, and abusive lending practices. However, even well-intentioned legislation, like this amendment, would have unintended consequences which would ultimately harm credit union members by making credit more expensive and less available.