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Published: February 2009

36% ‘FAIR’ rate cap bill protects consumers from lending abuses

Consumer Action, along with a diverse range of other organizations, sent a letter to Senator Richard Durbin praising S. 500, a bill he introduced that would cap interest rates for consumer credit at 36% annually.

We applaud you for introducing S.500 that would stop a wide range of lending abuses by capping interest rates for consumer credit at 36 percent annually.  Cleaning up the finance industry is essential to a sustainable economic recovery.

The “Protecting Consumers from Unreasonable Credit Rates Act” would implement a key promise made by President Obama to extend to all Americans Congressional protection against predatory lending for Service members and their families.  By limiting the total cost of consumer credit to 36 percent, Congress will keep billions of dollars in the hands of low and moderate-income consumers, helping to stimulate the economy without costing taxpayers a penny.  

This measure is designed to keep affordable financial products available, as lenders who offer sustainable loans do so at rates well below 36 percent annually. But it would eliminate abuses that rely on high fees, interest and other devices to charge extremely high annual rates—some 400 percent and higher—to trap consumers in debt they cannot afford to pay off.

Protections that once curbed abusive lending in America have been shredded, and consumers are paying astronomical rates for credit, especially those who have the fewest resources.  Payday loans cost 400 percent APR or higher; car title loans cost 300 percent APR and put car ownership at risk; loans secured by expected tax refunds cost 50 to 500 percent APR; and credit card fees and interest can combine to produce triple-digit rates.  Bank overdraft loans can cost quadruple digit interest rates.  These extremely expensive credit products drain billions from families who struggle to make ends meet, diminishing their ability to purchase products and services that would boost the economy.

The ability of states to enact meaningful reforms on credit card and bank overdraft practices has been severely restricted as a result of federal preemption.  Banks are now permitted to locate in a state without consumer protections and then engage in unregulated lending in the other forty-nine states, which are powerless to protect their citizens against high cost credit cards and tax refund anticipation loans.  State usury caps have been riddled with loopholes and exceptions, leaving consumers in thirty-five states exposed to outrageously expensive payday loans.  

The FAIR (Fees and Interest Rate) cap on consumer credit is set high enough not to hamper mainstream responsible lending.  A 36 percent rate cap is twice the limit for federally-chartered credit unions and enables credit to be responsibly extended to consumers with less than perfect credit ratings.  This is the rate cap enacted by Congress through the Military Lending Act and is the limit typically used in state small loan laws.  The FAIR cap will be the maximum amount lenders can charge, but states will be able to set lower rate caps to protect their citizens, such as New York’s 25 percent criminal cap and Arkansas’s constitutional cap.

We urge quick action to implement the FAIR cap to stop usurious credit rates, to protect struggling consumers, and to put all lenders under the same set of protections.

Lead Organization

Consumer Federation of America

Other Organizations

Consumer Federation of America | Consumers Union | National Consumer Law Center (on behalf of its low income clients) | U. S. Public Interest Research Group | Center for Responsible Lending | National Community Reinvestment Coalition | NAACP | National Consumers League | Community Action Partnership | Americans For Fairness in Lending | Association of Community Organizations for Reform Now (ACORN) | National Training and Information Center | National Association of Consumer Advocates (NACA) | First Nations Development Institute Oweesta Corporation | National Fair Housing Alliance | Consumers for Auto Reliability and Safety | National Health Law Program (NHeLP) | National Congress of American Indians | Lawyers’ Committee for Civil Rights Under Law State Organizations Alabama Appleseed | Alaska Injured Workers Alliance Research and Development Corp. | Arizona Public Interest Research Group | Arizona Consumers Council | Democratic Processes Center, Arizona | Southwest Center for Economic Integrity, Arizona | Arkansans Against Abusive Payday Lending, Arkansas | San Diego City/County Reinvestment Task Force, California | Law Foundation of Silicon Valley | Inner City Law Center, Los Angeles, California | Consumer Federation of California | California Reinvestment Coalition | Public Interest Law Firm, Fair Housing Law Project, San Jose, CA | Legal Aid Society of San Mateo County, CA | Legal Assistance Resource Center of Connecticut, Inc. | Jacksonville Area Legal Aid, Inc., Florida | Florida Consumer Action Network | Florida Equal Justice Center | Lawyers for Equal Justice, Hawaii | Central Illinois Organizing Project, Illinois | Citizen Action/Illinois | Project IRENE, Illinois | Woodstock Institute, Illinois | Action Now, Illinois | Lakeside Community Development Corporation, Illinois | Child and Family Policy Center and Iowa Coalition Against Abusive Lending, Iowa | Community of Christ and Inter-Religious Council of Linn County, Iowa | Iowa Community Action Association | Sunflower Community Action, Kansas | Kentucky Youth Advocates | Making Connections Network, Louisville, Kentucky | Mountain Association for Community Economic Development, Kentucky | Kentucky Equal Justice Center | Kentucky Asset Building Coalition | Public Justice Center, Maryland | Maryland Consumer Rights Coalition | The Coalition for Social Justice, Massachusetts | Neighborhood Legal Services, Lawrence, Massachusetts | Alliance to Develop Power/ADP Worker Center, Massachusetts | Mississippi Center for Justice | GRO-Grassroots Organizing, Missouri | Consumer Credit Counseling Service, Missouri | Gateway Legal Services, Inc., Missouri, Arkansas, and Illinois | Montana Business and Professional Women, Montana Women’s Lobby | Montana Community Foundation | Consumer Credit Counseling Service, Nevada and Utah | Legal Aid Center of Southern Nevada | New York State Consumer Protection Board | Josh Zinner and Sarah Ludwig, Neighborhood Economic Development Advocacy Project, New York | North Carolina Justice Center | Housing Research and Advocacy Center, Ohio | Coalition on Homelessness and Housing in Ohio | Miami Valley Fair Housing Center, Inc., Ohio | PolicyMatters, Ohio | Deep Fork Community Action, Oklahoma | SEIU Local 503, Oregon | SEIU Oregon State Council | AARP Oregon | SEIU Local 49, Oregon | Our Oregon Community Legal Services, Pennsylvania | South Carolina Appleseed Legal Justice Center | Senior Citizens of Hendersonville, Inc | United Way of Sumner County, Tennessee | RISE Foundation and Memphis Responsible Lending Collaborative, TN | United Way of Greater Knoxville, Tennessee | Home Safe of Sumner, Wilson and Robertson Counties, Inc., Tennessee | La Fe Community Development Corporation, El Paso, Texas | Dominion Financial Management, Smyrna, Texas | Coalition of Religious Communities, Utah | Virginia Organizing Project Virginia Citizens Consumer Council | Virginia Interfaith Center | Virginians Against Payday Lending | Virginia Poverty Law Center | Virginia Partnership to Encourage Responsible Lending Statewide Poverty Action Network, Washington | Washington ACORN | Columbia Legal Services, Washington, on behalf of clients | Washington Community Action Network

More Information

S. 500

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