New legislation would protect people from the financial quicksand of high-interest loans
First bill to extend Military Lending Act’s rate cap protection to all Americans
Learn more about this map, showing the APR of a typical payday loan in those states without strong interest rate caps. For instance, in Illinois it is 404% and in Wisconsin 574%.
WASHINGTON, D.C. – The Center for Responsible Lending (CRL) announced support for the Veterans and Consumers Fair Credit Act, which is being introduced today in the U.S. House of Representatives by Congressmen Jesús “Chuy” García (D-IL) and Glenn Grothman (R-WI), and in the Senate by Senators Jeff Merkley (D-OR), Sherrod Brown (D-OH), Jack Reed (D-RI), and Chris Van Hollen (D-MD). The legislation would establish a national 36% APR cap while making clear that it would not interfere with state rate limits lower than that.
Under current law, the Military Lending Act (MLA) protects military servicemembers and covered dependents from loans higher than 36%, but it does not protect veterans or civilians. This legislation would extend the MLA cap to cover all Americans.
Center for Responsible Lending (CRL) Senior Policy Counsel Rebecca Borné said,
Predatory, unaffordable loans are burying people in debt. They cause people to lose their cars, bank accounts, and good health. The Veterans and Consumers Fair Credit Act would put an end to this gross exploitation.
CRL has calculated that every year Americans lose approximately $8 billion in fees alone to payday and car title lenders – not to mention spiralizing collateral costs and consequences. These businesses target low-income consumers and communities of color with their debt trap products.
Prior to enactment of the Military Lending Act (MLA), the Department of Defense issued a report showing how payday lenders specifically targeted servicemembers. The report found that “predatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all volunteer fighting force.” Along with other protections, the Department recommended a 36 percent APR rate cap that includes “all cost elements associated with the extension of credit..."
In 2006, Congress, on a bipartisan basis, enacted these recommendations in the form of the MLA. This law has been successful in stopping predatory lenders from exploiting servicemembers. For example, in 2006, around 1,500 active-duty servicemembers indebted to payday lenders sought financial aid from the Navy-Marine Corps Relief Society, which provided more than $1.2 million in assistance. By 2018, that went down to three requests for aid and around $4,000 in support paid.
In addition to the military community, residents of sixteen states and the District of Columbia – with a total population of nearly 100 million – are protected from the payday loan debt trap through interest rate caps of 36% or less. Around 40 states have caps, averaging 36% or less, for longer-term loans.
Meanwhile, the political leadership of the Consumer Financial Protection Bureau is currently trying to roll back consumer protections on payday and car title loans, which makes passage of the Veterans and Consumers Fair Credit Act even more urgently needed.
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