Whitehouse, Blumenthal & Durbin Introduce Bill to Protect Consumers from Predatory, High-Cost Lending

Washington, DC - U.S. Senator Sheldon Whitehouse (D-RI) joined Senators Richard Blumenthal (D-CT) and Dick Durbin (D-IL) to introduce the Protecting Consumers from Unreasonable Credit Rates Act, which would cap fees and interest on consumer loans at an Annual Percentage Rate (APR) of 36 percent-the same limit currently in place for loans marketed to military service members and their families. Studies show that while lenders today offer easy credit, these transactions often come with high interest rates, steep late fees, and other hidden charges. This predatory business model exploits hard-working Americans, trapping them in long-term debt cycles that drain bank accounts and cause serious, long-term financial harm.

"High-cost predatory lenders exploit hard-working Americans who are trying to make ends meet," said Whitehouse. "Our legislation puts a cap on consumer loan interest rates to protect borrowers and prevent families from ending up in a crushing cycle of debt."

"Hard working Americans deserve access to affordable loans-without being subject to exploitative practices like high interest rates and hidden fees. The Protecting Consumers from Unreasonable Credit Rates Act supports consumers by targeting predatory lending and capping consumer loan interest rates. This legislation protects consumers taking on loans from suffering crushing debt," said Blumenthal.

"Too many Americans suffer long-term financial harm from predatory loans and deceptive tactics. We need federal legislation that cracks down on predatory lending and closes loopholes used to exploit hard-working Americans," said Durbin. "The Protecting Consumers from Unreasonable Credit Rates Act would eliminate high-cost payday loans and other costly forms of credit that trap vulnerable consumers in endless debt cycles."

In 2006, Congress enacted a federal 36 percent annualized usury cap for certain credit products marketed to service members and their families, which curbed payday, car title, and tax refund lending around military bases. Forty-five states and the District of Columbia have enacted caps on interest rates and loan fees for some consumer loans, including 19 states and the District of Columbia, which have set their Annual Percentage Rate (APR) at 36 percent or lower for a $500, six-month installment loan.

Various federal and state loopholes allow unscrupulous 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.

To protect consumers from predatory lending practices, the Protecting Consumers from Unreasonable Credit Rates Act 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;
• Encourage the creation of responsible alternatives to small dollar lending by providing tolerances for initial application fees and ongoing lender costs;
• Ensure that this federal law does not preempt stricter state laws; and
• Create specific penalties for violations of the new cap and support enforcement in civil courts and by State Attorneys General.