Tag: 36% APR Cap


A 36% APR on a 2-week loan = customers pay $1.38 per $100 borrowed.

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Consumer Loan APR Rates

By: Jer Ayles

FALLACY #1: Payday lenders, car title lenders, installment lenders, and all small-dollar loan lenders can earn a profit under a state-imposed 36% annual percentage rate cap.

FALLACY #2: Small-dollar loan customers should simply go to a bank rather than me. My worst critic knows that banks DO NOT WANT my customer! Banks think my customer is a giant PAIN! My customers are not comfortable inside a bank. If you’ve visited a bank lately, you know it requires an act of god to even talk with a banker. Fuhgeddaboudit!

FACT: A report by Professor Victor Stango, “…a 36 percent cap eliminates payday loans. If payday lenders earn normal profits when they charge $15 per $100 per two weeks, as the evidence suggests, they must surely lose money at $1.38 per $100 (equivalent to a 36 percent APR.)”–Economists Robert DeYoung, Ronald Mann, Donald Morgan, and Michael Strain, Federal Reserve Bank of NewYork  

So-called consumer protectionists and competitors [think pawn shops, banks, credit unions, and lenders servicing 640+ FICO consumers via long-term, $3000+ loans] lobby hard for capping interest rates at 36%.

A 36% Annual Percentage Rate Cap in the real world =

  • $100 borrowed would generate $1.38 per month in interest.
  • That’s equivalent to $.10 per day.
  • A $100,000 “book” [portfolio – “money on the street,” would earn $36,000 per year in top line revenue.
  • In other words, $36,000 per year or $3000 per month GROSS.

The Reality?

  • I cannot pay my storefront rent with $3000 in monthly fee revenue with a $100,000 portfolio!
  • I need 2.5 employees. [How much $$$$ in wages and benefits is that in your locale?]
  • My average cost of capital is 12%.
  • Bad debt. My net chargeoffs are 18%.
  • My CAC is $185.
  • Additional line item expenses include insurance, security, underwriting, phones, utilities, licensing, state audit fees, collections, text messaging fees, and loan mngt. fees, office expenses…
  • Taxes.
  • Accounting, legal & professional fees.
  • Unlike credit unions, various community groups & banks, my business is NOT subsidized.
  • While my competitors technically provide <36% loans to a limited pool of subprime consumers, they evade the 36% APR cap by selling expensive insurance products to their customers, products that are NOT included in the loan’s APR calculation. The result? 180%+ APRs.
  • My customers WANT & NEED my loan products! They know my loan product is expensive. I tell them it’s expensive. The fees I charged are plastered all over the walls of my store and on my website. My team doesn’t hide our fees. EVER! There is no need.
  • My customers desire loans of $100 – $500. Who is going to take a chance on them? Not a bank? Not a credit union. Their friends and family, who my customer is too embarrassed to ask for a loan, are OFTEN in the same boat. Where to turn in an emergency? Food, Car repair, medicine, rent…
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National 36% APR Cap Introduced

A National 36% APR CAP INTRODUCED! Lenders, NEED HELP? We have STRATEGIES. Reach out to Jer@theBusinessOfLending.com

“WASHINGTON – A bill to protect consumers who borrow with consumer loans has been introduced by U.S. Senate Majority Whip Dick Durbin (D-IL) and other lawmakers.
The bill, known as the Protecting Consumers from Unreasonable Credit Rates Act, would cap fees and interest on consumer loans at an Annual Percentage Rate (APR) of 36 percent. This is the same limit that currently exists for loans marketed to military service members and families.” https://lnkd.in/gumxCxa

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