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 BrownSanders: Clinton with a moderate VP would be a 'disaster' The Hill's 12:30 Report Clinton urged to go liberal with vice presidential pick 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 DurbinHow airport security lines got so bad Dem senators call for sanctions on Congo Dems press ITT Tech to give students right to sue MORE (D-Ill.), Barbara BoxerBarbara BoxerDem senators back Interior coal leasing review Trump and Sanders whip up debate buzz Boxer: Sanders appeals to young voters with grandpa effect MORE (D-Calif.), Richard BlumenthalRichard BlumenthalDems press ITT Tech to give students right to sue Senate amendments could sink email privacy compromise Groups urge Senate to oppose defense language on for-profit colleges MORE (D-Conn.), Jeff MerkleyJeff MerkleySanders tests Wasserman Schultz Honor Frank Lautenberg by protecting our kids Dems discuss dropping Wasserman Schultz MORE (D-Ore.) and Sheldon WhitehouseSheldon WhitehouseThe Hill's 12:30 Report Senate amendments could sink email privacy compromise Honor Frank Lautenberg by protecting our kids 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.