WASHINGTON – The introduction of the Predatory Lending Elimination Act has drawn praise from a number of consumer groups.
As CUToday.info reports separately, CUNA has also issued a statement of support for the legislation.
Representatives of the National Consumer Law Center, Center for Responsible Lending, Consumer Federation of America, and Americans for Financial Reform thanked Sen Jack Reed (D-RI) and more than a dozen Senators for introducing the legislation, 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.
The law would not affect federal credit unions, which already are limited by an 18% loan cap and a 28% cap for payday alternative loans.
‘Simplest Way’ to Stop
“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,” National Consumer Law Center Associate Director Lauren Saunders said in a statement. “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.”
According to the organizations, 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.”
Bipartisan Consumer Support
In addition, the group said 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.
The groups noted 45 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,” the group said.
What Legislation Would Do
The Predatory Lending Elimination Act covers all types of lenders and seeks to:
- Prevent hidden junk fees and loopholes
- Establish a simple, common sense limit that is broadly supported by the public on a bipartisan basis
- Simplify compliance by adopting a standard that lenders already understand and use
- Uphold the ability of states to adopt stronger protections as needed, such as lower rates for larger loans.
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