The proposed reform also takes several important steps to close the loophole in the Payday Loan Reform Act that has allowed some lenders to offer long-term loans with rates as high as 1200 percent APR and little or no oversight.  For loans up to $4,000, the proposal would  cap interest rates for small consumer loans at 99 percent, limits rollovers, sets a minimum loan term of 180 days to ensure that borrowers have a sufficient amount of time to repay the loan, and requires lenders to verify borrower’s ability to repay the loan.  In addition, the proposal prohibits the antiquated and unfair Rule of 78ths method of calculating refunds in the event of early pay-offs, and eliminates unfair balloon payments. 

“Establishing reasonable rates that lower the cost of borrowing while keeping fair credit available is the most important provision of this proposal and our core reform principal,” said Tom Feltner, vice president at Woodstock Institute.  “This proposal establishes consumer protections that will keep credit available to consumers, while eliminating practices such as back-to-back refinancing that so often contribute to a cycle of non-productive debt.”

The proposal also establishes a 36 percent rate cap for all other types of lending, ensuring that lenders cannot modify their products to evade consumer protections and preventing future loopholes.