These short-term, small-dollar loans can have triple-digit annual percentage rates (APR) and are known to disproportionately affect low-wealth consumers and communities of color, often trapping them in a vicious cycle of debt. A recent Center for Responsible Lending report showed the average bank payday loan customer took out 19 loans in 2011.

The Protecting Consumers from Unreasonable Credit Rates Act would limit abusive lending practices and create a fairer playing field for all consumers. Senator Durbin’s office is touting the bill as a new approach to capping interest rates and fees on loans. Whereas previous attempts struggled in their attempts to define “predatory lending,” the Protecting Consumers from Unreasonable Credit Rates Act caps APR for all loans—regardless of the issuer—at 36 percent.

According to the Senator’s release, the bill would:

• Establish a maximum APR equal to 36% and apply this cap to all open-end and closed-end consumer credit transactions, including mortgages, car loans, credit cards, overdraft loans, car title loans, refund anticipation loans, and payday loans.

• Encourage the creation of responsible alternatives to small dollar lending, by allowing initial application fees and for ongoing lender costs such as insufficient funds fees and late fees.

• Ensure that this federal law does not preempt stricter state laws.

• Create specific penalties for violations of the new cap and support enforcement in civil courts and by State Attorneys General. 

The cap reflects a level of consumer protection that advocates have long demanded. Military families are already protected by a federal cap at 36 percent, and many states prohibit all payday loans or cap rates at this level or lower. Last week, the National Consumer Law Center released Why 36%? The History, Use, and Purpose of the 36% Interest Rate Cap outlining the long history and significance of the 36 percent rate cap.

Woodstock Institute has joined a long list of organizations in thanking Senator Durbin for introducing the bill.

• Establish a maximum APR equal to 36% and apply this cap to all open-end and closed-end consumer credit transactions, including mortgages, car loans, credit cards, overdraft loans, car title loans, refund anticipation loans, and payday loans.
• Encourage the creation of responsible alternatives to small dollar lending, by allowing initial application fees and for ongoing lender costs such as insufficient funds fees and late fees.
• Ensure that this federal law does not preempt stricter state laws.
• Create specific penalties for violations of the new cap and support enforcement in civil courts and by State Attorneys General. 

 

 

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