50-State Survey: APRs Increase As States Allow Lenders to Pile on Junk Fees

November 21, 2024 — Press Release

Despite Crackdowns on Evasions, Interest Rate Caps are Rising and Junk Fees Continue to Take a Toll on Borrowers

WASHINGTON – A new report from the National Consumer Law Center (NCLC) finds that while 45 states and the District of Columbia currently cap interest rates and loan fees for many consumer installment loans, interest rate caps still vary greatly from state to state, rates are trending upward, and too many states allow lenders to pile on junk fees. 

“States must ensure that their laws protect consumers from predatory interest rates and hidden junk fees,” said Carolyn Carter, deputy director at the National Consumer Law Center and principal author of the report. “In the absence of rate limits at the federal level, state interest and fee caps are consumers’ primary defense against predatory interest rates and junk fees that hide the true cost of the loan.” 

Predatory Installment Lending in the States: How Well Do the States Protect Consumers Against High-Cost Installment Loans? includes maps and tables showing the annual percentage rate caps in every state and the District of Columbia for a sample 6-month $500 loan and a 2-year $2000 loan, and provides key recommendations for states to protect residents from predatory high-cost lending. 

Since last year, Florida increased its interest rate cap from 30% to 36%, and allowed that rate to be charged for larger loans. Kansas also extended its highest allowable interest rate, 36%, to larger loans, while Mississippi extended a 59% APR, previously limited to loans of $4,000 or less, to loans of up to $5,100.

Oklahoma’s and Texas’s already high APR caps continue to increase due to annual adjustments and changes to the loan sizes for which higher interest is allowed. Adding insult to injury, the Texas Finance Commission increased a junk fee from $100 to $125, and adopted a policy of increasing that fee every year.

Despite the trends, two states improved protections for residents from predatory high cost lending. Washington substantially strengthened its protections against evasions of its consumer loan laws, making it clear that the state’s 36% APR cap includes everything a consumer pays in connection with the loan, and tightening restrictions on rent-a-bank lending. Kentucky abolished high-cost auto title loans by repealing the statute that allowed them. While the report addresses only unsecured loans, the Kentucky bill nonetheless represents a significant step forward for consumers in the state.

The report provides recommendations for states to better protect residents from high cost loans and hidden junk fees, including to:

• Cap APRs at no more than 36% for smaller loans, such as those of $1,000 or less, with significantly lower rates for larger loans,
• Prohibit junk loan fees or strictly limit them to prevent junk fees from being used to undermine the interest rate cap and acting as an incentive for loan flipping,
• Include all payments in the APR calculation, whether or not they are deemed “voluntary.” Some lenders have tried to disguise fees as purportedly voluntary “tips,” expedite fees, or donations,
• Prevent loopholes for open-end credit. Rate caps on installment loans will be ineffective if lenders can evade them through open-end lines of credit with low interest rates but high fees,
• Ban the sale of credit insurance and other add-on products, which primarily benefit the lender and increase the cost of credit,
• Examine consumer lending bills carefully.  Predatory lenders often propose bills that obscure the true interest rate. Get a calculation of the full APR, including all interest, all fees, and all other charges, and reject the bill if it is over 36% (or if it applies a 36% APR to more than the very smallest loans).
• Include anti-evasion provisions to prevent lenders from laundering their loans through out-of-state rent-a-banks to evade state rate caps or disguising their loans as sales, “earned wage” payments, or other devices.

“Caps on interest rates and junk fees are the primary ways states protect consumers from predatory lending,” said Carter. “We recommend a strict annual percentage rate cap of no more than 36% for loans of up to $1,000 in every state and significantly lower limits for larger loans.”

Related Resources

• NCLC’s High-Cost Credit online content
• Larger Loans Need Lower Rates: A 50-State Survey of the APRs Allowed for a $10,000 Loan, March 2024
• Predatory Installment Lending in the States: How Well Do the States Protect Consumers Against High-Cost Installment Loans? (2023), November 2023
• Brief: After Payday Loans: Consumers Find Better Ways to Cope with Financial Challenges, August 2021
• Brief: Why Cap Interest Rates at 36%?, August 2021
• State Rate Caps for $500 and $2,000 Loans, March 2021