Reps. Garcia and Grothman Re-Introduce 36 Percent Rate Cap Bill

Nov 29, 2021Congressional Legislation, News

U.S. Reps. Jesus “Chuy” Garcia (D-Ill.) and Glenn Grothman (R-Wisc.) recently introduced their Veterans and Consumers Fair Credit Act in an effort to extend the 36 percent rate cap established on small dollar loans under the Military Lending Act (MLA) to all consumers. Garcia and Grothman also introduced the bill in previous Congresses.

“It’s up to Congress to ensure that families aren’t stuck with unpayable interest rates on loans for a utility bill or baby stroller,” Garcia said in a press release. “This bipartisan bill expands the time-tested protections of the Military Lending Act to veterans, military families, and other consumers. Congress should act with haste to advance it to protect families from this unpayable debt.”

“As more and more loans are given online, it becomes more difficult for states to deal with the problem of snowballing debt,” said Grothman. “This raises the question—if it is wrong to allow predatory lenders to target our servicemembers, why is it right to let them target the rest of the community?”

The new legislation includes proposals to establish a national 36 percent rate cap as well as enforce new disclosure requirements on small business lenders. However, American Banker noted that it will likely face tough opposition from Republicans in the Senate.

In July 2021, the Senate Banking Committee convened a hearing to examine a potential extension of the MLA’s rate cap. In advance of that hearing, NAFSA sent a letter to committee leadership opposing the 36 percent rate cap proposal.

“Tribal financial services businesses have never been more important since the COVID-19 pandemic, during which 100% of the 474 Tribal casinos in America closed,” wrote NAFSA Executive Director Gary Davis. “Tribes made the difficult decision to save lives by closing their casinos, but the cost was massive. Subsequently, Tribes took insurmountable hits to their annual revenue, leaving many unable to pay for basic essential human services such as nutrition programs, childcare, elderly support programs and infrastructure maintenance, not to mention the countless Native and non-Native employees  that found themselves unemployed for extended periods.”

“During this time, Tribal financial services revenue was the last remaining lifeline for dozens of geographically-isolated Tribes, providing tens of thousands of Tribal citizens with food, shelter, and health care,” Davis continued. “Financial services and FinTech are areas that Tribes are finding to be the great equalizer for Indian Country, finally generating meaningful revenue that can lift our communities out of poverty. Enacting a 36% rate cap would effectively eliminate these Tribal businesses, erase the good they do for Native American governments and their citizens, and leave Indian country with yet another insurmountable burden and greater economic inequity.”

The MLA was passed in 2006 to cap interest rates at 36 percent APR on loans for active duty servicemembers, and was revised in 2015 by the Department of Defense to cover more products, like credit cards.

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