The American Financial Services Association (AFSA) reported last week that there is no rate cap and no arbitration-ban language included in the final version of this year’s National Defense Authorization Act –which is the must-pass bill funding the military. Traditionally, this is the bill that both Republicans and Democrats deem necessary to protect and defend the USA. As a result, it is customary for some members to try to tack on their “wish list” items, hoping to advance them into law. Rate caps are such an item for some Members of Congress.

I have written many times about the 36% APR cap provision in the Military Lending Act; and how some Members have sought to extend such rate cap provisions to all consumer financial services transactions. See Dentons - Back to Basics, Continued—The Case Against a 36% Rate Cap, Dentons - Back to Basics, Continued - What Does “All-In” APR Mean Anyway?, Dentons - Back to Basics, Continued—There’s Strength in Numbers, and Dentons - Back to Basics, Continued— Military Lending.

The 36% APR cap is not a good idea. Economists generally agree that the annual percentage rate as a measurement tool lacks precision. It is too blunt an instrument even to address predatory lending. Adopting such a tool is a little like “throwing the baby out with the bathwater.” Nevertheless, some Members of Congress continue to support a rate cap. Fortunately, they have not developed enough supporters to pass such a bill as standalone legislation.

It is important that the consumer finance industry continue to remain vigilant and monitor bill introductions in Congress and in state legislatures.

Please note: This is the one hundred eighty-ninth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.