On Thursday, July 29, the Senate Banking Committee will hold a hearing entitled, “Protecting Americans from Debt Traps by Extending the Military’s 36% Interest Rate Cap to Everyone.”
The scheduled witnesses for the first panel are Republican Congressman Glenn Grothman and Democratic Congressman Jesús G. “Chuy” García. The scheduled witness for the second panel are:
- Holly Petraeus, Former Assistant Director for Servicemember Affairs, CFPB
- Ashley Harrington, Federal Advocacy Director and Senior Counsel, Center for Responsible Lending
- Richard Williams, President/CEO, Essential Federal Credit Union
- Bill Himpler, President & CEO, American Financial Services Association
- Professor Thomas W. Miller, Jr., Jack Lee Chair in Financial Institutions and Consumer Finance, Mississippi State University
- David Pommerehn, General Counsel and Senior Vice President, Consumer Bankers Association.
In 2019, Congressmen García Grothman introduced the Veterans and Consumers Fair Credit Act, which would extended the Military Lending Act’s all-in 36% rate cap to most consumer credit transactions. Earlier this month, Democratic Senators Dick Durbin, Jeff Merkley, Richard Blumenthal, and Sheldon Whitehouse introduced the “Protecting Consumers from Unreasonable Credit Rates Act,” which would establish a 36% all-in rate cap for all open-end and closed-end consumer credit transactions, including payday loans, car title loans, overdraft loans, credit cards, car loans, mortgages, and refund anticipation loans.
In anticipation of the hearing, a group of seven banking trade groups that includes the American Bankers Association and the Consumer Bankers Association have sent a letter to Senator Sherrod Brown, Chair of the Senate Banking Committee, and Senator Pat Toomey, the Committee’s Ranking Member, that urges the Senators to oppose pending fee and interest rate cap legislation. In the letter, the trade groups caution that the impact of a 36% all-in national rate cap “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, person loans, and overdraft lines of credit.” They point out that the result will be to reduce access to credit and force many consumers who currently rely on credit cards or personal loans “to turn elsewhere for short-term financing needs, including pawn shops, online lenders—or worse—loan sharks, unregulated online lenders, and the black market.” According to the trade groups, “[a] 36% rate cap, however calculated, will mean depository institutions will be unable to profitably offer affordable small dollar loans.” They also caution that a 36% all-in rate cap would negatively impact credit cards by resulting in the elimination or reduction of popular and valued credit card features such as cash back or other rewards and inhibiting innovative credit cards with non-credit features designed to attract underserved groups.