WASHINGTON, D.C. – As the prospect of an interest rate cap has moved to the forefront of national public policy discussions, the Consumer Federation of America and Americans for Financial Reform join over 170 other civil rights, consumer, academics, and community groups and leaders in a letter to Congress calling for passage of S3793, the Predatory Lending Elimination Act. 

This new legislation, just introduced by U.S. Senator Jack Reed (D-R.I.), along with 15 co-sponsors, would establish a permanent cap of 36% annual percentage rate (APR) on consumer credit, including fees, covering credit cards as well as installment, car-title, and payday loans. The bill would extend the current law preventing lenders from charging interest on loans to military servicemembers above this limit to protect everyone in America from usurious loan rates.

“High-cost credit doesn’t help people get ahead,” said Adam Rust, director of financial services for the Consumer Federation of America. “It  pulls struggling borrowers into debt traps they may not be able to escape. The Predatory Lending Elimination Act makes credit affordable, levels competition through consistent and complete pricing disclosures, and stops lenders from hiding add-on fees in the fine print.”

“Unchecked, triple digit interest rates are driving people into debt that they can’t escape and making everything from rent to groceries more expensive,” said Tom Feltner, associate director of consumer policy at Americans for Financial Reform. “A commonsense rate cap will protect millions of people from the long-term cycle of debt and offer similar protections already available in dozens of states across the country.”

The Predatory Lending Elimination Act amends the Truth in Lending Act to cover all types of lenders, including banks, and would eliminate predatory payday loans, auto-title loans, and similarly harmful, high-cost credit across the nation by:

• Closing loopholes, aiding competition, and preventing hidden junk fees. The bill applies the same “all-in” pricing approach used in the Military Lending Act to capture the true cost of credit, so consumers can compare loans using standardized and complete cost estimates. 
• Simplifying compliance by adopting a standard that lenders already understand and use: the rate cap for servicemembers that was established by the Military Lending Act, a bipartisan law enacted in 2006.
• Stopping lenders from using “rent-a-bank” schemes to charge triple-digit APRs.
• Establishing a simple, common-sense limit that has broad, bipartisan public support. 
• Upholding the ability of states to adopt stronger protections as needed, such as lower rates for larger loans.
    

The Predatory Lending Elimination Act does not apply to residential mortgages, car purchase loans, or loans by federal credit unions. Federal credit unions are already subject to an 18% interest rate cap for most loans and a 28% cap for payday alternative loans.

 Interest rate limits, also known as usury laws, are very popular with Republican, Democratic, and independent voters, date back thousands of years, and have been implemented around the world. Nearly all states and the District of Columbia currently cap rates for at least some consumer installment loans, depending on the size of the loan, and twenty-one states and D.C. prohibit high-cost, short-term payday loans. These caps are the easiest and most effective way to protect consumers from predatory, high-interest loans. Additional background is in the letter to Congress.