Please see attached.

Chair Maldonado and Members of the Subcommittee, The Innovative Lending Platform Association (ILPA) appreciates the opportunity to submit testimony opposing Senate Bill 1252, which extends Virginia’s current 12 percent annual interest rate caps on loans and lines of credit. ILPA is the leading trade organization for online lenders and service companies serving small businesses. Our members provide various innovative, digital commercial financing products. They proudly supply thousands of Virginia businesses with working capital to invest, purchase inventory, hire additional staff for the busy season, expand operations, or repair damaged or outdated equipment. Using innovative underwriting and advanced technology, our members assess credit risk and deliver financing in as little as 24 hours. While we applaud the bill sponsors' intent to protect Virginia consumers from predatory lending practices, the consequences of rate caps are far more serious to Virginia borrowers because rate caps limit access to capital. Economists across the board, from the World Bank to senior economic advisors to Federal Reserve Banks, understand that price controls are not without serious consequences for consumers. Rate caps limit access to capital because they make it difficult, if not impossible, for lenders to provide capital to those who need it most. A study from the Aspen Institute shows that a $5,000, 18-month loan would have to carry a 40 percent interest rate to cover the origination cost fully. That is simply the cost of providing a borrower with capital, saying nothing about covering the costs of loan defaults, collections, and the myriad other costs that lenders must endure. This is currently evidenced right here in Virginia. The bill’s proponents claim that it is necessary because out-of-state lenders are circumventing the law and harming consumers. But there are two major faults with this. First, Virginia banks are exempt from Virginia’s usury laws. Right now, Virginia Credit Union is offering small personal loans for 28 percent. Second, in today’s digital world, any would-be borrower can find hundreds of offers from hundreds of lenders in seconds. Consumers only pay more than 12% for loans from out-of-state non-bank lenders because banks won’t lend to them because they don’t have the correct credit score or Virginia-based non-bank lenders can’t afford to lend to them under Virginia’s usury law. ILPA appreciates the sponsors' intent to help consumers pay less for loans. Everyone is deeply concerned about rising prices across the board. However, expanding Virginia’s lending price cap is not the answer. It will just shut off Virginia borrowers from one of the last segments that actually serve them.

Chair Maldonado and Members of the Subcommittee, Please see attached The Innovative Lending Platform Association's (ILPA) letter opposing Senate Bill 1252. ILPA appreciates the opportunity to submit testimony.

A summary of our concerns are below: New Partnerships & Innovation: ETA supports an inclusive financial system that provides high quality, secure, and affordable financial services for the broadest possible set of consumers and small businesses, which result from partnerships between banks and third-party service providers. ETA supports legislative efforts that encourage and promote new and leading-edge collaboration models. Such models strengthen the ability for banks and financial institutions to provide innovative financial services to consumers at scale by fostering innovation, encouraging healthy competition, ensuring affordability, and maintaining overall stability. Third party service providers offer streamlined payments systems, improvements to user interfaces, and assistance with customer acquisition. Additionally, banks and third parties collaborate on best practices in fraud detection and prevention. Passing legislation to examine businesses working across these areas could disrupt the payments industry’s ongoing efforts to provide opportunities for all consumers and small businesses to access and benefit from inclusive financial products and services. Impact to Virginia Consumers: Imposing stricter interest rate caps, such as 12%, will limit access to credit for consumers in the state. Additionally, it will discourage financial institutions from creating new products tailored to meet the needs of underserved communities. It is important for Virginia policymakers to carefully consider the potential consequences of this legislation to ensure there is a balance between consumer protection and maintaining access to credit. SB 1252 would result in Virginians having far less choice in what products they can select and could lead to a lack of access to credit within the state. Impact to Small Businesses: Limiting credit options not only affects Virginia consumers but also has significant ramifications for small business owners across the state. Many of these entrepreneurs rely on individual access to credit to fulfill their funding needs, particularly when traditional financing avenues are inaccessible or inadequate. Small business owners frequently encounter challenges in securing necessary capital to sustain and expand their operations. Passing SB 1252 would risk further exacerbating these difficulties, hindering entrepreneurs' ability to access vital resources for growth and development. It is important to recognize that small and short-term loans play a pivotal role in providing small business owners and entrepreneurs with the capital they need to thrive. Whether it is purchasing inventory, covering operational expenses, or funding expansion initiatives, these financing options are essential for the success and sustainability of small businesses. Furthermore, the economic impact of small businesses cannot be overstated. They serve as engines of growth, driving innovation, creating jobs, and fostering economic activity within Virginia communities. By limiting access to credit, the state of Virginia would risk stifling the potential of these businesses to contribute positively to the state's economy. Passing SB 1252 would only serve to curtail the positive impact that Virginia entrepreneurs and small business owners could have on the state’s economy. Instead of constraining credit options, we should be exploring ways to support and empower small businesses, enabling them to thrive and succeed.