WASHINGTON (WAND) – A bill to protect consumers who borrow with consumer loans has been introduced by US Senate Majority Whip Dick Durbin (D-IL) and other lawmakers.
The bill, known as the Protecting Consumers Against Unreasonable Credit Rates Act, would cap fees and interest on consumer loans at an annual percentage rate (APR) of 36%. This is the same limit that currently exists for loans marketed to military service members and families.
Lenders offer easy credit, but transactions often involve “high interest rates, high late fees and other hidden charges,” lawmakers said in a press release. They called the practice a “predatory business model” that “exploits hard-working Americans, trapping them in long-term debt cycles that drain bank accounts and cause serious long-term financial damage.”
“In 2006, Congress passed a federal annualized usury cap of 36% for certain credit products marketed to military personnel and their families, which limited payday loans, car titles and loan repayments. taxes around military bases, âthe statement said. âEighteen states, including Illinois, and the District of Columbia have enacted usury laws that protect borrowers from high-cost payday loans and other expensive forms of credit.
“Various federal and state loopholes allow unscrupulous lenders to charge cash-strapped consumers an APR of 400% on average payday loans, 300% for auto title loans and up to 17,000% APR for bank overdrafts. ”
The bill would do the following:
- Establish a maximum APR equal to 36% and apply this limit to all indefinite and closed consumer credit transactions, including payday loans, auto title loans, overdrafts, credit cards, loans automobiles, mortgages and prepayment loans;
- Encourage the creation of responsible alternatives to small loans by providing tolerances for initial application fees and ongoing costs of lenders;
- Ensure that this federal law does not prejudge more stringent state laws; and
- Create specific sanctions for violations of the new ceiling and support enforcement by civil courts and state attorneys general.
“It’s time for federal legislation to crack down on predatory lending and fill in the loopholes used to exploit hard-working Americans,” Durbin said in a statement. The Consumer Protection Against Unreasonable Credit Rates Act would eliminate expensive payday loans and other forms of credit that trap vulnerable consumers in endless debt cycles. Too many Americans suffer financially in the long run from these. predatory loans and these deceptive tactics, and we have to stop it. “