As efforts to roll back restrictions on high-cost payday loans ramp up in the House, the Protecting Consumers from Unreasonable Credit Rates Act introduced in the Senate by Senator Dick Durbin (D-IL) would create a national interest rate cap of 36 percent. The bill is a response to the persistent triple digit interest rates common among payday loan and other high-cost loan products.
Introduced with the support of Senators Jeff Merkeley (D-OR), Sheldon Whitehouse (D-RI), and Barbara Boxer (D-CA), the bill follows and supports ongoing payday reforms campaigns that have gained momentum at the state level.
“A 36 percent rate cap is a proven method for eliminating industry worst practices,” says Tom Feltner, Woodstock Institute vice president. “We thank Senator Durbin for his commitment to responsible lending and rate reform.”
The 36 percent rate cap bill also follows industry attempts to deregulate payday lending at the national level. Two proposals, H.R. 6139 and H.R. 1909, have picked up support in the House on the false grounds that they will expand access to credit in underserved communities. Both propose to create a new national charter for payday lenders similar to the national bank charter that would allow payday lenders to operate throughout the country, evade existing interest rate caps, and curtail disclosure requirements.
For example, both H.R. 6139 and H.R. 1909 would eliminate the requirement that lenders disclose the interest rate on loans of less than one year, making comparison between higher cost payday loan products and lower cost products, such as credit union installment loans, difficult.
“The backers of H.R. 6139 and H.R. 1909 have gone to great lengths to reframe predatory products as necessary innovations and replace transparency in the financial marketplace with unrestrained credit at any cost,” says Feltner. “Instead, we need a meaningful rate cap that offers room for responsible products while protecting consumers from triple digit interest rates.”
A similar rate cap proposal was introduced by Senator Durbin in 2009.