Legislation Introduced to Cap Consumer Loan Interest Rates at 36% APR

U.S. Senate Majority Whip Dick Durbin (D-IL) and U.S. Senators Jeff Merkley (D-OR), Richard Blumenthal (D-CT), and Sheldon Whitehouse (D-RI) have introduced legislation aimed at cracking down on predatory lending practices by capping consumer loan interest rates at 36% APR. This move is a response to the widespread exploitation of hard-working Americans by unscrupulous lenders who charge exorbitant fees and interest rates, often trapping borrowers in long-term debt cycles.

Key Takeaways:

The Protecting Consumers from Unreasonable Credit Rates Act aims to eliminate high-cost payday loans and other costly forms of credit that trap vulnerable consumers in endless debt cycles.
The legislation would establish a maximum APR of 36% and apply it 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.
The bill encourages the creation of responsible alternatives to small-dollar lending by providing tolerances for initial application fees and ongoing lender costs.
It ensures that the federal law does not preempt stricter state laws and creates specific penalties for violations of the new cap.
The legislation is endorsed by 20 organizations, including Americans for Financial Reform, Center for Responsible Lending, and National Consumer Law Center.

Statistics:

18 states and the District of Columbia have enacted usury laws that protect borrowers from high-cost payday loans and other costly forms of credit.
On average, payday lenders charge 400% APR, car title lenders charge 300% APR, and bank overdraft lenders charge up to 17,000% APR.
In 2006, Congress enacted a federal 36% annualized usury cap for certain credit products marketed to service members and their families.
Ends of year debt for consumer loans exceeded $1 billion.

Sources:

Americans for Financial Reform
Center for Responsible Lending
Consumer Federation of America
National Consumer Law Center
"The Protecting Consumers from Unreasonable Credit Rates Act"