The American Financial Services Association (AFSA) has expressed concerns over the proposed Protecting Consumers from Unreasonable Credit Rates Act, which aims to impose a 36% annual percentage rate (APR) cap. According to AFSA, this legislation could prevent millions of Americans, particularly those from lower- and middle-income households, from accessing safe and regulated credit. The association made this announcement on its website.
A study examining Illinois' implementation of a 36% all-in APR cap revealed significant impacts on unsecured installment loans for subprime borrowers. The number of such loans dropped by 44%, while the average loan size increased by approximately 40%. This data suggests that smaller loans became unprofitable under the cap, prompting lenders to reduce or eliminate offerings for high-risk consumers. Most surveyed borrowers reported losing access to credit when needed after the cap was enacted.
The same study found that only 11% of respondents experienced improved financial well-being following the enactment of Illinois' 36% cap. In contrast, 79% expressed a desire to return to their previous lenders. Many indicated that losing access forced them into incurring late fees, cutting back on essentials, or losing other financial flexibility. These findings highlight that while the cap was designed to protect consumers, it adversely affected many individuals it aimed to help.
Research utilizing Federal Reserve data on small-dollar loans indicates that many small loans—typically under $1,000—are issued to nonprime borrowers who account for nearly 70% of outstanding balances. These borrowers often depend on finance companies or nonbank lenders. Strict APR limits may reduce the availability of these loans or drive lenders out of the market, leaving borrowers with fewer options or pushing them toward unregulated alternatives.
The American Financial Services Association serves as the national trade association for consumer credit providers in the United States. It represents various entities including auto finance companies, personal and installment lenders, and credit card issuers. AFSA states that one of its primary objectives is ensuring credit access for lower- and middle-income households by advocating for regulations that balance consumer protection with maintaining affordable and safe credit options.