AFSA Submits Letter Supporting APR Amendment

Last week, AFSA submitted a letter to House Financial Services Committee (HFSC) Chairman Jeb Hensarling (R-Tex.) supporting an amendment to his Financial CHOICE Act 2.0. The amendment would prohibit federal agencies from creating annual percentage rate (APR) calculations that differ from the APR calculations governed by the Truth in Lending Act (TILA). For decades, TILA has provided a clear standard for creditors and it should be preserved.

The letter notes that some consumer advocacy groups have argued that instead of the traditional TILA APR calculation, creditors should use an APR calculation that includes charges for voluntary protection products (VPPs), such as credit insurance, that are sold in conjunction with the loan. Commonly referred to as “all-in APRs” these calculations artificially increase the cost of credit. VPPs are not a cost of credit under TILA because they are optional products that are not imposed on the consumer as a condition of obtaining the loan. VPPs are a separate and distinct charge as identified in TILA.

The core objective of TILA was to help consumers shop for credit by being able to compare APRs across loans and creditors. However, by including VPPs in an APR calculation (which vary in cost and benefits) consumers lose the opportunity to compare products and make an informed decision on the actual cost of the loan.