ABA and CUNA Issue Statements Advising Legislators That Interest Rate Caps Could Harm Consumers and Reduce Offerings

Recently, the American Bankers Association (ABA) and the Credit Union National Association (CUNA) issued statements warning lawmakers of the potential drawbacks to imposing rate caps on consumer credit products. Both agencies stressed that overly protective legislation can restrict credit access and credit union products, especially for borrowers who face credit challenges.

In a statement submitted for the record of a recent House Financial Services Committee hearing, the ABA said that “legislation to cap lending prices is not as advertised by some advocates; it is more than just ‘interest rate caps’ and would undermine basic presumptions about how consumer credit markets operate.”

CUNA, in a statement for the same hearing, wrote that “we caution Congress and federal regulators against haphazardly establishing rigid restrictions on all lenders that would likely result in the diminished availability of fair and reasonable credit options from local credit unions.”

Additionally, CUNA’s letter noted that credit unions are a pro-consumer substitute for high cost loans and are adequately regulated by state and federal laws, including lower interest rate caps. Member-owned credit unions can typically offer short-term loans that are 400 percent lower APR than loans from payday lenders.

The ABA also argued that credit card interest rates should be decided by market forces.

“If issuers were required to keep rates artificially low, many consumers would lose access to credit, which myriad studies have shown has real, damaging effects on households,” the Bankers’ Association wrote.