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: Smooth path for Commerce pick after hearing | Treasury nominee to defend foreclosure record | GOP tax turmoil Brown asks for FBI files tied to Mnuchin company Senate Democrats brace for Trump era 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 DurbinTrump Treasury pick to defend foreclosure record Senate Democrats brace for Trump era Senators introduce dueling miners bills MORE (D-Ill.), Barbara BoxerBarbara BoxerFeinstein to hold campaign fundraisers, a hint she'll run again Becerra formally nominated for Calif. attorney general 10 freshmen to watch in the new Congress MORE (D-Calif.), Richard BlumenthalRichard BlumenthalSenate panel approves Mattis for Defense secretary Senate Dems urge Sessions to abstain from voting on Trump’s Cabinet picks Takata will plead guilty, pay B in faulty airbag probe MORE (D-Conn.), Jeff MerkleyJeff MerkleyFive takeaways from Pruitt's EPA hearing Overnight Energy: Trump's EPA pick faces Congress | 2016 is hottest year on record Booker to vote against Tillerson MORE (D-Ore.) and Sheldon WhitehouseSheldon WhitehouseFive takeaways from Pruitt's EPA hearing Health pick’s trades put STOCK Act in spotlight Dems prepare to face off with Trump's pick to lead EPA 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.