Abusive interest rates of as much as 650 percent charged for “payday loans” would be outlawed by a just-introduced bill capping annual interest rates for consumer credit at 36 percent.
Sponsored by Sen. Dick Durbin (D-Illinois), the Protecting Consumers from Unreasonable Credit Rates Act (S. 500), would impose a federal usury cap of 36 percent Annual Percentage Rate (APR) on all consumer credit transactions. Several states have already enacted similar and even more restrictive interest caps. Durbin’s bill would not affect state laws that impose interest rate caps lower than 36 percent. A 36 percent interest cap law is already in place for U.S. military personnel and their families.
“Within blocks of my home in Springfield, Illinois, there are payday lenders charging interest rates of two and three hundred percent of the value of the loan,” Sen. Durbin said in a press release. “These excessive rates are often hidden and can have crippling effects on those individuals who can afford it least. Congress must enact protections against predatory lending. America’s working families depend on it.”
Sen. Durbin’s bill also establishes civil penalties for violations including cancellation of excess interest charges, fines, and jail time.
While a 36 percent interest rate is still high -- twice the limit allowed for federally-chartered credit unions -- Durbin points out that previous attempts to control the payday loan industry at the federal level have failed due to disagreement on the definition of “predatory” lending. By setting a relatively high interest rate cap, he hopes to overcome that problem.
Calling a clean and ethical financial industry an absolute necessity for nationwide economic recovery, Consumers Union applauded the Protecting Consumers from Unreasonable Credit Rates Act in a press release. “By limiting the total cost of consumer credit to 36 percent, Congress will keep billions of dollars in the hands of low and moderate-income consumers, helping to stimulate the economy without costing taxpayers a penny.”
Also See:
Consumers Warned of Online Payday Loan Sites
Three Payday Lenders Charged With Hiding Interest Rates
Comments
Actually, everyone has it backwards including Durbin. The banks charge through their overdraft fees in excess of 4000% percent annually. The payday lenders are actually discount overdraft fee vendors.
Capping interest rates will not stop people from abusing credit. People will still max out the credit cards and credit checks that come in the mail by the truckload. They’ll still buy stuff they don’t need and can’t afford. This is just a pitiful bone that Durbin and his pals on the Hill are throwing us while they write billion dollar “bailout” checks to the very mortgage banks that have cost many of us our homes.
Wow, Reality Check, I agree with you 100%.
For people who truly need short term credit this may just eliminate their only option.
I agree with Consumer Loan Software. These loans are meant to be short term loans which should be paid in a month or two. The people who use payday loans or pawnbrokers usually cannot borrow money any other way. The interest rates are higher because these people have poor credit and many times borrow the money with no intention of repaying thus the risk for the lender is much greater than with bank loans as there is no credit check; anyone can walk in and walk out with money in their pockets. However, some of these customers repay quickly and are very happy to recieve financing via payday loans and pawnbrokers. A rate cap would effectively eliminate many consumer credit options entirely. You can’t loan money to comsumers with bad credit unless the interest rate is high enough to keep the lender in business when so many don’t repay. If anything, people should educate themselves so as not to limit their options. No one is forced to borrow money, but it is good to have the option if you need it.