Seventeen states and DC now cap rates at around 36% or lower to stop abusive debt trap loans, with Illinois poised to become the eighteenth

DURHAM, NC – Today, the Center for Responsible Lending (CRL) released a new map showing the typical annual interest rate of a payday loan in states across the country. The map reflects a trend toward stopping loans of 400% APR and more, with a long way yet to go before protections cover all U.S. families. In spite of the progress, states with rate caps face threats from predatory lenders that are partnering with out-of-state banks in order to evade state interest rate limits, a practice called “rent-a-bank.” During the Trump administration, bank regulators issued federal rules that may encourage predatory lenders to engage in this scheme.

Nebraska became the seventeenth state plus the District of Columbia to make triple-digit interest payday loans illegal within its borders when it brought rates down from an average 400% to no more than 36% last fall. The ballot measure accomplishing this reform passed with 83% of the vote.

In Illinois, lawmakers passed a 36% cap in January as part of a package of bills proposed by the Legislative Black Caucus to address systemic racial inequities. Passed with broad bipartisan support, unanimously in the House, the measure awaits the signature of Governor J.B. Pritzker to become law.

Center for Responsible Lending Researcher Charla Rios made the following statement:

As Nebraska joins those states with effective protections against payday lending debt traps and as Illinois is on its way, we see steady progress. But millions of families are still unprotected across much of the country at a time when job loss, income reduction, and economic uncertainty make triple-digit debt traps even more dangerous. And even those residents of protected states are at risk if actions like the OCC’s ‘true lender’ rule are not reversed.

We cannot look away from the harm predatory lending is bringing to people who are literally fighting for survival. Designed with terms that intentionally make them very difficult to pay off, payday loans are associated with overdraft and insufficient funds fees to the point of closing bank accounts. They make it significantly harder for struggling families to make ends meet and cover basic living expenses. Payday borrowers are forced to file bankruptcy at higher rates than people in similar financial situations.

And in state after state, research shows more payday loan stores in communities of color, regardless of income. These are the very same communities that have been devastated by COVID, where families are losing loved ones at higher rates, and feeling profound financial impacts.

While we celebrate passage of every state reform that puts a stop to this exploitation, we must continue to push for reform until all U.S. families are protected. Congress and the Biden Administration should show commitment to caring for the least resourced, hardworking families that are keeping this country going through essential work that often puts their lives at risk.

We must reverse the dangerous ‘true lender’ rule pushed out by the OCC during the previous administration. And we should cap interest rates on predatory lenders across the nation to stop the debt trap of payday lending for all U.S. families.


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