Consumers’ Research Senior Research Fellow Professor Tom Miller To Testify Before Senate Banking Committee
Consumers’ Research Senior Research Fellow Professor Tom Miller To Testify Before Senate Banking Committee

Consumers’ Research Senior Fellow Professor Tom Miller, Jr. will testify before the Senate Committee on Banking, Housing, and Urban Affairs at 10:00 A.M. Thursday, July 29.


The hearing is entitled “Protecting Americans from Debt Traps by Extending the Military’s 36% Interest Rate Cap to Everyone.” Professor Miller will testify on his research into the effects of imposing a 36% interest rate cap on loans across the U.S.


Currently, 18 states and Washington, D.C., have laws that limit short-term loan rates to 36% or lower, according to the Center for Responsible Lending. Federal lawmakers are considering replicating these laws on a national level to protect consumers from small-dollar loans with high interest rates that some call “predatory.”


On Thursday, Professor Miller will testify that, far from being predatory, these loans are an essential lifeline for many consumers who have poor or no credit and are underbanked.


Consumers turn to small-dollar loans because they lack access to cheaper bank credit. According to a banking regulator, nearly 33 million families have no or limited access to bank credit. Also, 45 million primarily young, low-income, and minority Americans have poor or thin credit histories. They are ineligible for prime credit cards and bank loans. 


“Many consumers use small-dollar loans because they lack access to cheaper bank credit – they are “underbanked,” in the policy jargon. According to the FDIC, 18.7 percent of all U.S. households were classified as underbanked in 2017. For one in five households in America, small-dollar nonbank loans are vital,” said Professor Miller. 


Miller believes an interest rate cap of 36% will eliminate this lifeline for millions of consumers. While it may sound like a reasonable rate cap for large loans, it renders small-dollar lending unprofitable, thereby removing the product from the market. 


“Under a 36 percent APR cap, the revenue from [a] $100 payday loan would be only $1.38. A 2009 study by Ernst & Young, however, showed the cost of making a $100 payday loan was $13.89. The cost of making the loan exceeds the loan revenue by $12.51 – probably more, since over a decade has passed since the E&Y study. Logically, lenders will not make unprofitable loans. Under a 36 percent APR cap, consumer demand will continue to exist, but the legal supply will dry up,” said Professor Miller.


In his testimony, Professor Miller will draw on his scholarly work on consumer credit, where he studies how small-dollar loan markets work and how best to help lawmakers restructure laws to improve the welfare of borrowers.


Professor Miller will also draw on his time as a member of the Consumer Finance Protection Bureau’s Academic Research Council and use the CFPB’s 2021 Report of the Taskforce on Federal Consumer Financial Law to discuss the demand for consumer credit, the supply of consumer credit, and the “perennial problem of small-dollar lending.”


Tom Miller Jr. is a Professor of Finance and inaugural holder of the Jack R. Lee Chair in Financial Institutions and Consumer Finance at Mississippi State University. He currently serves as a member of the Academic Research Council at the Consumer Financial Protection Bureau and as a Senior Research Fellow at Consumers’ Research, the nation’s oldest consumer protection organization.


Professor Miller will testify alongside several U.S. representatives as well as Mrs. Hollister K. Petraeus, Former Assistant Director for Servicemember Affairs at the Consumer Financial Protection Bureau; Ms. Ashley Harrington, Federal Advocacy Director and Senior Counsel at the Center for Responsible Lending; Mr. Richard Williams, President and CEO of Essential Federal Credit Union; Mr. Bill Himpler, President & CEO of American Financial Services Association; and Mr. David Pommerehn, General Counsel and Senior Vice President, Consumer Bankers Association.


Watch the hearing live here.

Consumers’ Research Senior Research Fellow Professor Tom Miller’s Testimony
on the Effects of a 36% Interest Rate Cap

Miller Testimony 7-29-21

Supplemental Written Testimony