A bill has been introduced in the U.S. Senate that would cap fees and interest on consumer loans at an annual percentage rate (APR) of 36 percent.
This is the same limit in place for military service members and their families, the lawmakers said. In 2006, Congress mandated a federal 36 percent annualized usury cap for certain credit products marketed to service members and their families. Over the years, that has curbed payday, car title, and tax refund lending around military bases.
“Payday lenders make their money through ultra-high interest rates and fees paid by the people who can least afford it,” U.S. Sen. Sheldon Whitehouse (D-RI), one of the bill’s sponsors, said. “This bill would impose sensible limits to help end the inescapable cycle of debt too many Americans currently face. In the long run, we need to restore states’ rights to set usury limits and protect home state consumers from lending abuse.”
Along with Whitehouse (D-RI), the legislation is also sponsored by U.S. Sens. Dick Durbin (D-IL), Jeff Merkley (D-OR), and Richard Blumenthal (D-CT).
“It is time for federal legislation that cracks down on predatory lending and closes loopholes used to exploit hard-working Americans. The Protecting Consumers from Unreasonable Credit Rates Act would eliminate high-cost payday loans and other costly forms of credit that trap vulnerable consumers in endless debt cycles. Too many Americans suffer long-term financial harm from these predatory loans and deceptive tactics, and we must put an end to it,” Durbin said.
Various federal and state loopholes allow lenders to charge high interest rates, as high as 400 percent APR for payday loans, 300 percent APR for car title loans, and up to 17,000 percent for bank overdraft loans.
This bill would establish a maximum APR of 36 percent and apply this cap to all open-end and closed-end consumer credit transactions, including payday loans, car title loans, overdraft loans, credit cards, car loans, mortgages, and refund anticipation loans. Further, it would ensure that this federal law does not preempt stricter state laws. It would also create specific penalties for violations of the new cap and support enforcement in civil courts and by State Attorneys General.
“Back in 2007, we kicked payday lenders—who prey on families when they’re at some of the most vulnerable times in their lives—out of Oregon,” Merkley said. “Americans in every corner of this country deserve the same protections from these lenders’ predatory practices. Let’s make this the year that Congress passes the Protecting Consumers from Unreasonable Credit Rates Act so we can stand up to these lenders and help ensure that Americans seeking to recover from the economic impacts of the coronavirus crisis are not lured into a vortex of debt.”
The bill is endorsed by Americans for Financial Reform, Center for Responsible Lending, Consumer Federation of America, National Consumer Law Center, Woodstock Institute, and Shriver Center on Poverty Law.