Lawmakers must ensure all borrowers have access to responsible credit

The Sun-Times article on payday loans and Black communities highlighted a tension that neither lenders, consumer advocates, nor lawmakers have found an optimal policy to break. Trade groups repeated a line that payday lenders have used for more than 30 years: that they provide a service to underserved communities that no one else provides. To which the consumer aptly noted: “It helped when I needed it, but the interest rate is crazy.”

In truth, lawmakers must meet a dual objective on credit policy: Does it ensure sufficient credit is both available and responsible? A rate cap is a blunt policy tool and the continuing debate around the Illinois’ interest rate cap is whether it strikes the right balance.

Overall, is Illinois’ policy designed not just to drive out “bad credit” but to also attract “good credit”? The scores of banking deserts, underbanked households and underserved communities in the state make clear this is unlikely to happen by accident.

American Fintech Council was the only industry group to support the Illinois rate cap bill. It fits our non-traditional business model: many of our bank members partner with financial technology companies (“fintech”) to originate consumer loans that are largely at or below 36% APR. Our partnerships largely lend to prime and non-prime borrowers and compete more with bank credit cards than payday lenders.

Because costs around consumer loans are largely fixed, the rate cap could mean that it is more difficult to provide smallerdollar loans to subprime and harder-toserve borrowers who cost the most to serve because they are in far-flung places or are higher-risk. Bank-fintech partnerships use technology that can cut costs and may find ways to provide more smaller-dollar credit affordably. However, it is key that Illinois policymakers develop policies, encourage fintech partnerships and other innovations that may be outside the traditional bank model but have the potential to meet their dual objectives on credit.

The challenge for state lawmakers is how to facilitate these small-dollar credit alternatives and ensure they are available and competitive with higher-cost options that may circumvent the Illinois rate cap. We look forward to working with state lawmakers to balance their dual policy objectives and meet the credit needs of consumers, whatever their risk profile or community.

Gerron S. Levi, Senior Vice President, Head of Government Affairs, American Fintech Council