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U.S. Senators Introduce Bill to Establish Strong, Nationwide Interest Rate Cap

Wednesday, July 28, 2021

CRL to testify in support of legislation at Senate hearing scheduled for tomorrow morning

WASHINGTON, D.C. – Today, U.S. Senators Jack Reed (D-R.I.) and Sherrod Brown (D-Ohio) – chairs of the Senate Armed Services and Senate Banking committees respectively – along with Senators Jeff Merkley (D-Ore.) and Chris Van Hollen (D-Md.) introduced the Veterans and Consumers Fair Credit Act. The legislation would establish a national 36% annual percentage rate (APR) cap for consumer loans while making clear that it would not interfere with state rate limits lower than that.

The bill will be considered tomorrow starting at 10 AM Eastern Time at a Senate Banking Committee hearing titled “Protecting Americans from Debt Traps by Extending the Military's 36% Interest Rate Cap to Everyone.” The hearing will feature testimony from U.S. Representatives Jesús “Chuy” Garcia (D-Ill) and Glenn Grothman (R-Wis.) – who, last Congress, jointly introduced the bipartisan House version of the bill – and other experts, including Center for Responsible Lending (CRL) Federal Advocacy Director and Senior Counsel Ashley Harrington.

“Predatory, high-interest lenders pull people down into financial quicksand, making them more likely to experience a range of harms, such as losing their bank account, defaulting on their bills, losing their car, and declaring bankruptcy. It is low-income consumers and disproportionately communities of color – whom the lenders target – that are being harmed,” said Ms. Harrington. “The Veterans and Consumers Fair Credit Act would protect all Americans from loans that trap them in a vicious cycle of debt.”

Additional Background
CRL has calculated that every year Americans lose approximately $8 billion in fees alone to payday and car title lenders – not to mention spiraling collateral costs and consequences.

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 addition to the military community, residents of eighteen states and the District of Columbia – with a total population of over 100 million – are protected from the payday loan debt trap through interest rate caps of 36% or lower. A greater number of states have caps on longer-term, installment loans. For example, on a $2,000 two-year loan, 32 states plus DC cap rates at 36% APR or lower.

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 2020 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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