BACK TO BASICS, Continued—There’s Strength in Numbers



According to the Alabama Banking Department’s most recent Report, there are over 3300 traditional installment licensees in Alabama.  That’s a lot of offices.  These offices had 1.036 million loans outstanding in fiscal year ending 2020, with total outstanding balances on these loans of $8.781 billion.  Also, I estimate that these licensees employ over 19,000 employees.  And, there are traditional installment lenders in most every town and city in Alabama—and in all states for that matter.

These stats do not count the number of installment sellers—auto dealers, furniture dealers, home improvement dealers and others—who are not required to hold a lenders license, but who none-the-less are creditors and are involved in consumer finance. 

In summary, there are a lot of offices, a lot of credit transactions and a lot of employees in the consumer finance industry throughout the nation.

I raise these statistics to remind us of the potential influence that the consumer finance industry wields nationwide.

We are currently facing a hue and cry for rate caps on consumer loans.  I have written about this many times in the past.  See here, here and here.  When a 36% rate cap is viewed through rose colored glasses, it may seem reasonable.  However, as every economist and industry employee knows, a consumer finance company cannot exist in a regulated environment if rates on small loans are capped at 36%.  The economics of the business dictate that this is a certain path to bankruptcy.

A 2020 Federal Reserve Board of Governors study showed a loan amount of $2,530 is necessary to break even at a 36% APR. The study also stressed that consumers who need a smaller loan or only could qualify for a smaller loan cannot be accommodated at 36%. The average traditional installment loan is $1,500, with an average term of 15 months.

I repeat all of this information for the purpose of empowering our member companies to call on their Congressmen and Women, and Senators at the federal level, and their Representatives at the state level, to oppose misguided rate cap legislation.  We have the statistics on our side and the breadth of locales on our side in order to make a meaningful difference in talking to our legislative representatives to get our voices heard.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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