On July 17, Democrats in the U.S. House and U.S. Senate introduced the Protecting Consumers from Unreasonable Credit Rates Act, which targets the fees payday lenders charge low-income borrowers for short-term loans. The legislation would cap interest rates on short-term loans at 36 percent.
Rep. Matt Cartwright (D-Pa.), who co-sponsored the House version of the bill, says, "My consumer-friendly legislation would provide relief from exorbitant fees for many low-income consumers across the country. Capping interest rates and fees for all consumers will not only protect working families, but also enable our economic recovery." The Senate version is co-sponsored by Sens. Dick Durbin (D-Ill.), Barbara Boxer (D-Calif.), Richard Blumenthal (D-Conn.), Jeff Merkley (D-Ore.), and Sheldon Whitehouse (D-R.I.), who are among the lawmakers concerned about what they call a "shady business model" that harms consumers. Durbin says, "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." However, Republicans contend that law-abiding payday lenders provide much-needed credit to low-income borrowers.
The bill builds on a law enacted in 2006 that restricts interest rates for military members and their families at 36 percent, but it goes beyond that law to cover both payday lenders and companies that offer other types of credit products to consumers and would impose significant penalties on lenders charging higher interest rates. According to the lawmakers, predatory lenders collect $27 billion in excessive fees and interest rates annually from around 12 million consumers.