By Tim Devaney - 07/17/14 12:37 PM EDT
Payday lenders are the target of new legislation that would cap the fees they charge low-income customers for short-term loans.
The Protecting Consumers from Unreasonable Credit Rates Act would restrict interest rates to no more than 36 percent in a move that would also affect companies that offer consumers other types of credit products. The bill was introduced Thursday by Democrats in the House and Senate.
"My consumer-friendly legislation would provide relief from exorbitant fees for many low-income consumers across the country, said Rep. Matt Cartwright (D-Pa.), who co-sponsored the House version of the bill. "Capping interest rates and fees for all consumers will not only protect working families, but also enable our economic recovery."
Senate Democrats, including Sherrod BrownSherrod BrownOvernight Finance: Lawmakers float criminal charges for Wells Fargo chief | Scrutiny on Trump's Cuba dealings | Ryan warns of recession if no tax reform Anti-trade senators say chamber would be crazy to pass TPP Democrats press Wells Fargo CEO for more answers on scandal MORE (Ohio), have sounded the alarm on what they call a shady business model that puts consumers in harm's way. But Republicans say payday lenders that abide by the law provide low-income borrowers with much needed credit that they can't get anywhere else.
“Throughout my career, I have worked to shield people from those who would take advantage of them through predatory lending practices," said Rep. Steve Cohen (D-Tenn.), the other co-sponsor of the House bill. "Predatory lenders wreck people’s lives and perpetuate a cycle of indebtedness. Justice and morality dictates that reasonable caps on interest be enacted to protect borrowers from devious lenders.”
The legislation builds on a 2006 law that capped interest rates at 36 percent for military members and their families. But it also extends beyond payday lenders to companies that offer consumers other types of credit products. It would create stiff penalties for lenders that charger higher interest rates, as well.
Sens. Dick DurbinDick DurbinRetailers have jumped the shark Dems gain upper hand on budget McConnell: Senate could drop flood money from spending bill MORE (D-Ill.), Barbara BoxerBarbara BoxerDems gain upper hand on budget Overnight Finance: Senate rejects funding bill as shutdown looms | Labor Dept. to probe Wells Fargo | Fed to ease stress test rules for small banks Funding bill rejected as shutdown nears MORE (D-Calif.), Richard BlumenthalRichard BlumenthalOvernight Tech: FCC chief downplays delay to TV box reforms | Lawsuit filed over internet transition | Waze rolls out ridehailing service Anti-trade senators say chamber would be crazy to pass TPP Leahy wants Judiciary hearing on Yahoo MORE (D-Conn.), Jeff MerkleyJeff MerkleyOvernight Finance: Lawmakers float criminal charges for Wells Fargo chief | Scrutiny on Trump's Cuba dealings | Ryan warns of recession if no tax reform Anti-trade senators say chamber would be crazy to pass TPP Democrats press Wells Fargo CEO for more answers on scandal MORE (D-Ore.) and Sheldon WhitehouseSheldon WhitehouseAnti-trade senators say chamber would be crazy to pass TPP Overnight Energy: SEC begins probing Exxon Senate Dems unveil new public option push for ObamaCare MORE (D-R.I.) are all co-sponsoring the bill.
"For some, payday lenders offer a quick way to make ends meet, but often with devastating consequences," Durbin said. "With interest rates of 200 to 300 percent of value of the loan, these excessive rates and hidden fees have crippling effects on those who can afford it least. I am glad to be joined today by Reps. Cartwright and Cohen in taking action to help protect working families from these predatory lending practices.”
The lawmakers reported that predatory lenders collect about $27 billion each year in excessive fees and interest rates from about 12 million consumers. They said the interest rates can top 300 percent.