AFSA has expressed concerns regarding the Community Development Financial Institutions Fund's (CDFI) recent guidelines for the small dollar loan program (SDL). The application process currently prohibits companies offering "high-rate loans" from participating. These are defined as loans exceeding either a 36% all-inclusive APR or the interest rate limit set by state financial regulators.
AFSA argues against labeling high-interest loans as "prohibited." The organization cites economic challenges such as inflation and layoffs, which have impacted consumer finances and created uncertainty in the credit industry. According to AFSA, these factors underscore the importance of maintaining access to capital for all Americans. They argue that categorizing certain loans as prohibited could undermine consumer confidence in regulated financial products.
The association highlights studies showing that rate caps can restrict credit access for millions of Americans who rely on it. AFSA contends that if CDFI continues to oppose lending above a 36% MAPR, consumers might lose access to suitable credit options.
AFSA also criticizes the use of "All-In APR," which includes costs unrelated to credit, arguing it limits higher-risk borrowers' access to affordable credit without affecting wealthier individuals significantly. They believe this misunderstanding stems from outdated views on optional protection products, which they see as enhancing financial capability.
The organization notes that its members offer voluntary insurance and non-loan services, emphasizing that loan terms do not depend on purchasing such products. AFSA asserts these offerings help customers build financial resilience and stability.
AFSA calls for criteria assessing responsible lending practices to focus on transparency and fair loan repayment structures rather than a strict adherence to a 36% MAPR cap. They suggest removing prohibitions against high-rate loans could promote diversity within CDFIs, support their growth, protect their brand, and enhance operational efficiency.