As explained when you look at the committee’s hearing memo, numerous lawmakers are worried that “payday and car-title loans may be damaging to customers” and they “force individuals who are currently struggling economically and underbanked into even even even worse circumstances.” Some members of the committee expressed their support for the Veterans and Consumers Fair Credit Act (H.R. 5050), which would impose a national 36 percent annual percentage rate cap on interest and allow the Consumer Financial Protection Bureau to take punitive enforcement action against lenders that exceed this cap to fix this supposed problem.
Out of access to legal credit entirely while it’s always good to focus on improving the lives of financially strapped consumers, much of the hearing ignored basic economics and how the proposed interest rate caps would further harm poor consumers by likely shutting them. As past CEI research and lots of academic research reports have shown, a higher-than-normal interest for a little buck loan is sensible when it comes to the “fixed expenses of operating any business—including the expense of running a storefront, having to pay workers, the expense of money, additionally the price of bad debts” and also the reality that “lenders must charge an amount that permits them to make a profit.”