By Charlene Crowell (Communication Director, Center for Responsible Lending)
A group of Capitol Hill lawmakers are combining efforts and influence to legislatively crack down on predatory lending, nationwide. Seventeen Members of the U.S. House and eight U.S. Senators are supporting companion bills that would slash the cost of payday and car-title loans from their typical 300 percent annual interest rate to no more than 36 percent—the same rate protection that Congress first provided military families in 2006.
Today, 90 million Americans living in 15 states and D.C. benefit from enacted rate caps of 36 percent or lower. But in the other 35 states, residents remain vulnerable to triple-digit interest rates that average 400 percent nationwide on an average loan of only $350. When consumers use their car titles as collateral for a larger and equally costly loan, a loss of personal transportation occurs when borrowers can no longer keep up with the spiraling high costs.
If enacted, the legislation is expected to have an immediate impact on payday and car-title loans, but would ensure that all consumer financial services would end cycles of debt that trick and trap unsuspecting consumers into long-term debt. The bicameral effort is led in the U.S. Senate by Senators Dick Durbin of Illinois and Jeff Merkley of Oregon. Their leadership counterparts in the House of Representatives are Matt Cartwright of Scranton, Pennsylvania and Steve Cohen of Memphis, Tennessee.
“Predatory lending disproportionately harms people who are already struggling financially,” noted Rep. Cartwright, where in Pennsylvania these types of predatory and high-cost loans are already banned by state law. “This consumer-friendly legislation would provide relief from exorbitant fees for many low-income consumers across the country.”
Rep. Cohen, Cartwright’s House colleague, felt similarly.
“Throughout my career, I have always worked to shield people from those who would take advantage of them through predatory lending practices that can wreak havoc on people’s lives and perpetuate a cycle of indebtedness,” said Cohen. “Both justice and morality dictate that reasonable caps on interest be enacted to protect borrowers from devious lenders.”
From the Deep South, to the Pacific Coast, and westward to the mid-Atlantic and Midwest states, state payday interest rates range as high as 662 percent in Texas to California’s 460 percent, and Virginia’s 601 percent. Likewise, in the Midwest, the states of Illinois, Missouri, Ohio and Wisconsin have comparable high interest rates that all exceed 400 percent. In Alabama and Mississippi, two of the nation’s poorest states when it comes to per capita incomes, payday interest rates are respectfully 521 percent and 456 percent.
“What we have encountered across the country is that when voters are given the chance to support a rate cap, large majorities consistently say ‘No’ to debt-trap lending,” said Yana Miles, senior legislative counsel with the Center for Responsible Lending. “Conversely, when it comes to state legislatures, reform efforts are often thwarted by the industry.”
Already more than 40 national, state and local organizations have jointly written their members of Congress in support of the legislation. Signers of the correspondence include civil rights organizations, labor, consumer advocates, and research institutes.
In part, the letter states, “Veterans, seniors, women, and communities of color are most often targeted for exploitation by these unaffordable high-cost loans…While the Consumer Financial Protection Bureau is expressly prohibited from setting a rate cap, Congress is not and should do so. A federal rate cap puts all creditors on a level playing field without undermining any additional consumer protections in the states.”
Durbin said that, despite the economic gains we have made as a nation in recent years, many working families continue to struggle.
“For some, payday lenders offer a quick way to make ends meet,” said Durbin. “But their outrageous interest rate caps and hidden fees can have crippling effects on the people who can least afford it.”
Merkley noted that the bill’s simple, straightforward approach will protect consumers and ensure that families aren’t bankrupted by high interest rates and hidden fees.
Charlene Crowell is communications deputy director with the Center for Responsible Lending. She can be reached at email@example.com.