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Bipartisan Legislation Would Cap Rates on Payday Loans at 36%
Consumer Advocates Applaud Effort to Take a Bite Out of Legalized Loan Sharks
Consumer protection legislation that would cap rates on payday and car title loans at 36% has been introduced in the House of Representatives. The bipartisan bill is a companion to similar legislation filed in the Senate in August. Current rates on payday loans can be in excess of 400% in some states.
The bipartisan House bill was introduced by Rep. Jesús “Chuy” Garcia (D-IL) and Rep. Glenn Grothman (R-WI) and is a companion to the Senate bill (S. 2508) that was introduced in August by Sens. Jack Reed (D-RI), Jeff Merkley (D-OR), Banking Committee Chairman Sherrod Brown (D-OH) and Sen. Chris Van Hollen (D-MD).
“For too long, payday and car-title lenders have been allowed to exploit the most economically vulnerable members of our communities,” said Candace Archer, payday and consumer campaigns manager for Americans for Financial Reform. “Congress is right to take the initiative to address this problem, especially as many families are struggling to recover from the economic devastation caused by the pandemic. This bill will establish nationwide safeguards to protect consumers from dangerous debt traps.”
According to the Consumer Financial Protection Bureau (CFPB) about 80 percent of borrowers have to take out another payday loan to repay the original loan, initiating a spiraling cycle often referred to as the “debt trap.” Every time a person takes out another loan, the overall amount of debt increases as interest and fees pile on. Collectively, the debt trap is draining $8 billion every year from borrowers. By prohibiting loans with an APR above 36 percent, this bill would fight the debt trap.
“This important legislation is needed now more than ever as consumers across the country try to recover from the financial ruin caused by the COVID-19 pandemic,” said Rachel Gittleman, Financial Services Outreach Manager with the Consumer Federation of America. “We thank Congressmen García and Grothman for prioritizing consumers and ensuring they are protected from predatory, high cost lenders that thrive on…
