In effort to reign in the power of certain lending companies that charge high fees to consumers, U.S. Senator Barbara Boxer (D-Calif.) along with Democratic colleagues introduced the “Protecting Consumers from Unreasonable Credit Rates Act,” in effort to eliminate excessive rates and fees that some consumers are charged for car title loans, payday loans, and other types of credit.
A related bill was introduced in the House of Representatives that would create an interest rate and fee cap of 36% for all consumer credit transactions, ending excessive rates which can sometimes be up to 300%. Many states have already enacted the 36% cap; for military personnel and their families, a similar cap has been imposed.
“It is unconscionable that these companies are preying on Americans who are struggling to make ends meet,” said Boxer. “This legislation will protect working families by capping the interest rates and fees that lenders can charge consumers.”
The issue over a true definition of ‘predatory lending’ has contributed to the failure of similar bills.
By setting a relatively high interest rate as the cap and applying that cap to all credit transactions, the legislation overcomes the problem and puts all consumer transactions on the same, sustainable, path. In doing so, consumers are protected, predatory lending practices are ended, and consumers will be helped in using credit more wisely.
The legislation has some specific goals, including:
– Establishes a maximum APR equal to 36% which would cap all open-end and closed-end consumer credit transactions, including mortgages, car loans, credit cards, overdraft loans, car title loans, refund anticipation loans, and payday loans.
– Encourage the creation of responsible alternatives to small dollar lending, by allowing initial application fees and for ongoing lender costs such as insufficient funds fees and late fees.
– Ensure that federal law does not preempt stricter state laws.
– Create specific penalties for violations of the 36% cap and establish support and enforcement among the states.
There are currently 70 national and state groups, including the Americans for Financial Reform, Consumer Federation of American, Public Citizen, the Center for Responsible Lending, and Consumers Union that support the legislation.