American Financial Services Association Welcomes
Black State Legislators’ Resolution on Small Dollar Loans
Washington, January 14, 2013 – The American Financial Services Association (AFSA) applauds a resolution recently adopted by the National Black Caucus of State Legislators (NBCSL) endorsing the development of responsibly underwritten small-dollar installment loans.
The resolution acknowledges the public need for small loans and points out that the way a loan is structured is the key to avoiding a cycle of debt often attributed to “balloon payments” – payments due in full on a certain date. The resolution identifies the key structural qualities of safe and affordable loans as being a schedule for repayment in substantially equal installments, and the lenders’ assessment of the borrower’s stability, ability and willingness to repay.
The resolution also addresses the issue of the cost of the loan, pointing out that the Annual Percentage Rate (APR), a required disclosure to borrowers, is not always the best indicator of actual cost. It affirms the importance of ensuring consumers’ access to low-cost, rather than low-rate, loans. Historically, APR rate caps have been a favored means of regulation in the past, despite not differentiating between loan types.
The resolution states that lenders should examine factors such as a borrower’s credit history, monthly disposable income available to service the debt, employment and existing debt as a condition of making a loan. It also recommends that lenders be community-based, licensed and audited by the state, and actively participate in community and charitable activities, particularly those relating to financial literacy.
“This resolution is intended to encourage the development of lending products that are low-cost and safe. Small-dollar loans are the lifeblood of communities underserved by the banks,” said incoming NBCSL President, Representative Joe Armstrong (TN). “It is essential that we as policymakers differentiate between loan types as we look at ways to balance access to credit with consumer protections that mean fewer people experience the cycle of debt.”
“Providers of traditional installment loans have been caught up by public policy that is intended to address the cycle of debt issues often associated with loans that require balloon payments,” said Chris Stinebert, AFSA President and CEO. “The NBCSL resolution highlights the need for policymakers to differentiate between radically different loan products and craft policy that allows consumers to access the small-dollar credit they need.”
The full resolution is available at http://www.nbcsl.org/public-policy/resolutions/item/624-business-financial-services-and-insurance-resolution-bfi-13-14.html.
Based in Washington, D.C., AFSA (www.afsaonline.org) is the national trade association for the consumer credit industry, protecting access to credit and consumer choice. Its 350 members include consumer and commercial finance companies, auto finance/leasing companies, mortgage lenders, credit card issuers, industrial banks and industry suppliers.
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Contact: Karen Klugh
AFSA Welcomes Black State Legislators' Resolution on Small Dollar Loans