WASHINGTON, D.C. – The Center for Responsible Lending (CRL) today announced its support for bipartisan legislation that would limit the interest rate on consumer loans to no more than 36% Annual Percentage Rate (APR).
U.S. Congressmen Jesús “Chuy” García (D-Ill.) and Glenn Grothman (R-Wis.) earlier this week introduced the Veterans and Consumers Fair Credit Act. The bill, H.R. 5974, would extend existing interest rate limit protections currently in place for active-duty military servicemembers and certain dependents to veterans and all other Americans. Identical legislation, S. 2508, has already been introduced in the U.S. Senate, where a hearing on the legislation has been held.
“Payday and other high-interest lenders trap people in debt. These lenders target financially vulnerable, low-income people, and communities of color – and they make their financial problems even worse. The Veterans and Consumers Fair Credit Act would stop this economic exploitation,” said Graciela Aponte-Diaz, Acting Federal Advocacy Director for CRL.
CRL has calculated that Americans lose approximately $7.5 billion a year in fees alone to payday and car title lenders – a figure that doesn’t include additional collateral costs and negative financial consequences.
The legislation would not interfere with state laws that impose an APR limit lower than 36%. In addition to servicemembers, residents of eighteen states and the District of Columbia – with a total population of over 115 million – are protected from the payday loan debt trap through interest rate caps of 36% or lower on short-term loans. In addition, 45 states plus D.C. have caps on at least some longer-term, installment loans.
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% 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. The year Congress enacted the MLA, 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 2020, the politically appointed leadership of the Consumer Financial Protection Bureau gutted a rule that would have protected consumers from payday and car title loan debt traps. The evaporation of this protection, along with the harms of the pandemic-induced economic crisis – which were most pronounced for communities of color, women, and low-wage workers – make passage of the Veterans and Consumers Fair Credit Act even more urgently needed.
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