Protecting Consumers from Predatory Lending: Introducing the Protecting Consumers from Unreasonable Credit Rates Act

Strategic Insights -

A new bill, the Protecting Consumers from Unreasonable Credit Rates Act, has been introduced by Senators Sheldon Whitehouse, Richard Blumenthal, and Dick Durbin to cap interest rates and fees on consumer loans, protecting hard-working Americans from predatory lending practices. The bill aims to eliminate high-cost payday loans and other forms of credit that trap consumers in debt cycles, citing federal and state loopholes that allow unscrupulous lenders to charge exorbitant interest rates. Studies show that these transactions often come with high interest rates, steep late fees, and other hidden charges, exploiting Americans who are trying to make ends meet.

Key Takeaways:

  • The Protecting Consumers from Unreasonable Credit Rates Act would cap fees and interest on consumer loans at an Annual Percentage Rate (APR) of 36 percent, mirroring the current limit for loans marketed to military service members and their families.
  • Currently, 45 states and the District of Columbia have enacted caps on interest rates and loan fees for some consumer loans, with 19 states and the District of Columbia setting their APR at 36 percent or lower for a $500, six-month installment loan.
  • Various loopholes allow lenders to charge cash-strapped consumers, on average, 400 percent APR for payday loans, 300 percent APR for car title loans, and up to 17,000 percent APR for bank overdraft loans.
  • The bill would establish a maximum APR equal to 36 percent and apply this cap 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 legislation would also provide tolerances for initial application fees and ongoing lender costs, ensure that federal law does not preempt stricter state laws, and create specific penalties for violators.

Statistics:

  • 45 states and the District of Columbia have enacted caps on interest rates and loan fees for some consumer loans.
  • 19 states and the District of Columbia have set their APR at 36 percent or lower for a $500, six-month installment loan.
  • Average interest rates for: payday loans (400 percent APR), car title loans (300 percent APR), and bank overdraft loans (up to 17,000 percent APR).

Sources:

  • Senator Sheldon Whitehouse press release, "Whitehouse, Blumenthal & Durbin Introduce Bill to Protect Consumers from Predatory, High-Cost Lending"
  • Senator Richard Blumenthal press release, "Protecting Consumers from Unreasonable Credit Rates Act"
  • Senator Dick Durbin press release, "The Protecting Consumers from Unreasonable Credit Rates Act"