Bill enacts interest rate cap with wide bipartisan popularity among voters
WASHINGTON – Advocates at the National Consumer Law Center, Center for Responsible Lending, Consumer Federation of America, and Americans for Financial Reform applaud Senator Jack Reed (D-RI) and more than a dozen Senators for introducing the Predatory Lending Elimination Act, which extends to veterans and all consumers the 36% annual percentage rate cap found in the Military Lending Act and prevents the use of junk fees to hide high-cost loans.
“A national 36% interest rate cap, including all fees, is the simplest way to stop predatory lending and ensure that lenders make responsible loans that borrowers can afford to repay,” said National Consumer Law Center associate director Lauren Saunders. “Senator Reed’s bill will prevent predatory lenders from using junk fees to obscure the true price of loans and put borrowers in a debt trap.”
Caps on interest rates and junk fees are the primary vehicle states can use to protect consumers from predatory lending. The 36% interest rate limit has become the broadly accepted dividing line between responsible lending and destructive credit that harms lives and destroys financial inclusion.
“We commend Senator Reed for introducing legislation that would protect American families from the financial devastation caused by payday and other predatory lenders,” said Mitria Spotser, vice president and director of federal policy at the Center for Responsible Lending. “The Predatory Lending Elimination Act would ensure that the same 36 percent interest rate cap on loans to military servicemembers and their families extends to all Americans.”
A 36% interest rate limit is broadly supported by people across the political spectrum, and strong majorities in both red and blue states have voted to enact rate limits in recent years.
“For too long, predatory lenders have taken advantage of the lack of a uniform national rate cap to evade state interest rate laws through rent-a-bank schemes,” said Adam Rust, Director of Financial Services for the Consumer Federation of America. “A single and straightforward all-in rate cap spells an end to that loophole. It will be a huge win for consumers.”
Forty-five states and the District of Columbia currently cap interest rates and loan fees for at least some consumer installment loans, depending on the size of the loan, and about half of the states prohibit high-cost, short-term payday loans. But while some states have cracked down on evasions, others are allowing lenders to pile on more junk fees or to charge high, unaffordable rates that trap low-income consumers in never-ending debt. Lenders have also exploited the lack of rate caps for banks to use “rent-a-bank” schemes to evade state interest rate laws.
“Families saddled with predatory loans are unable to afford basic living expenses, are subject to vehicle repossessions, abusive debt collections, bank account closures, bankruptcy,and other financial harm,” said Kimberly Fountain, consumer financial justice field manager for Americans for Financial Reform. “Americans for Financial Reform applaud Senator Reed’s bill to give America’s most vulnerable communities a fair interest rate cap.”
The Predatory Lending Elimination Act covers all types of lenders, including banks, and would eliminate high-cost, predatory payday loans, auto-title loans, and similar forms of toxic credit across the nation by:
- Preventing hidden junk fees and loopholes.
- Establishing a simple, common sense limit that is broadly supported by the public on a bipartisan basis.
- Simplifying compliance by adopting a standard that lenders already understand and use.
- Upholding the ability of states to adopt stronger protections as needed, such as lower rates for larger loans.
The Act does not apply to residential mortgages, car purchase loans, or loans by federal credit unions, which are already subject to an 18% interest rate cap for most loans and a 28% cap for payday alternative loans.
Related NCLC Resources
- Report: Predatory Installment Lending in the States: How Well Do the States Protect Consumers Against High-Cost Installment Loans? (2023)
- State Rate Caps for $500 and $2,000 Loans, November 2023
- Brief: Why Cap Interest Rates at 36%?, August 2021
- Brief: After Payday Loans: Consumers Find Better Ways to Cope with Financial Challenges, March 2022
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