Predatory Lending Elimination Act Aims to Protect American Consumers from Exorbitant Interest Rates

Strategic Insights -

Rhode Island Senator Jack Reed has joined lawmakers in introducing the Predatory Lending Elimination Act (S. 3549), a legislation that seeks to extend the protections of the Military Lending Act (MLA) to cover veterans and all other consumers. The MLA, which caps the effective interest rate on consumer loans, including fees, at 36 percent, has been successful in protecting servicemembers from predatory lenders. However, its limitations have left veterans, Gold Star families, and other Americans vulnerable to exploitative lending practices.

Key Takeaways:

  • The Predatory Lending Elimination Act aims to extend the MLA's 36 percent interest rate cap on most consumer loans and its current rules to all consumers, including veterans and Gold Star families.
  • The legislation seeks to rein in predatory payday lenders and other loan product providers who use abusive lending practices to target and lure American troops into debt traps.
  • According to Senator Reed, hundreds of millions of American consumers could benefit from a 36 percent APR cap, which would prevent predatory lenders from offering loans with triple-digit APRs that trap individuals in cycles of debt.
  • A May 2021 report from the Department of Defense found that credit cards, auto loans, and personal loans are widely available at risk-based rates under the 36 percent military APR.
  • Nineteen states and the District of Columbia have enacted 36 percent APR caps or banned payday loans, demonstrating that providing for reasonable, responsible limits on interest rates does not cut off consumers' access to credit.
  • The Predatory Lending Elimination Act has been endorsed by over 170 consumer, civil rights, veterans, and servicemember organizations, including the Consumer Federation of America, National Consumer Law Center, and the NAACP.
  • The bill has been cosponsored by Senators Tina Smith, Richard Blumenthal, Debbie Stabenow, and 14 others.

Statistics:

  • 80 percent of payday loans are rolled over or renewed within two weeks, saddling consumers with additional fees that are greater than the amount of money they originally borrowed (Source: Consumer Financial Protection Bureau).
  • Predatory lenders can offer loans with interest rates as high as 664 percent (Source: Senator Reed).
  • 19 states and the District of Columbia have enacted 36 percent APR caps or banned payday loans (Source: Senator Reed).
  • Over 170 consumer, civil rights, veterans, and servicemember organizations have endorsed the Predatory Lending Elimination Act (Source: Senator Reed).

Sources:

  • Senator Jack Reed
  • Consumer Federation of America
  • National Consumer Law Center
  • NAACP
  • Department of Defense (May 2021 report)
  • Consumer Financial Protection Bureau
  • Senator Merkley
  • Senator Brown
  • Senator Brown