- Payday loans, high-cost small loans averaging $350 that usually must be repaid in a single payment after two weeks, are designed to create a long-term debt trap. A 36% annual interest rate cap on payday loans (inclusive of fees) most effectively stops the cycle of debt. Currently 18 states and the District of Columbia have enacted rate caps of 36% or less. Since 2005, no new state has authorized high-cost payday lenders. States can and must continue to enact strong protections, such as a rate cap of 36% annual interest or less, to stop the payday debt trap.
- Recently, larger loans with longer terms have taken a greater share of the market. These loans can also carry triple-digit interest rates, and create a larger, longer debt trap. For loans larger than small payday loans (which typically range from $300-$500), a 36% annual interest rate is too high and a lower rate cap should apply. The larger the loan balance, the lower the interest rate should be.
- Federal laws enacted with bipartisan support make it illegal to charge service members more than 36 percent annual interest on a loan. One of the key enforcement roles of the Consumer Financial Protection Bureau is to closely monitor lenders who continue to prey on military personnel.