Congressmen Cartwright and Cohen Re-Introduce Legislation to Cap Excessive Interest & Fees; Crack Down on Predatory Lending

Washington, DC – Today U.S. Representatives Matt Cartwright (PA-17) and Steve Cohen (TN-9) re-introduced the Protecting Consumers from Unreasonable Credit Rates Act, legislation that would enact a cap on reform fees and rates associated with consumer credit products, including short-term and long-term payday loans and car title loans. 

U.S. Senate Assistant Minority Leader Dick Durbin (D-IL) introduced companion legislation in the Senate.

Predatory lending – defined by the Federal Deposit Insurance Corporation as the practice of “imposing unfair and abusive loan terms on borrowers” – extracts approximately $27 billion in excessive fees and interest from 12 million Americans each year due to excessive rates which can top 300 percent, according to the Center for Responsible Lending.  Pennsylvania prohibits payday loan storefronts and is one of the few states to prohibit excessive rates.  The state Supreme Court upheld this cap in 2010, though there have been recent efforts by certain state legislators and the payday loan industry to weaken the state law.

“Pennsylvania recognizes that predatory lending disproportionately harms economically disadvantaged individuals – people who are already struggling financially,” said Rep. Cartwright.  “My consumer-friendly legislation would provide relief from exorbitant fees for many low-income consumers across the country.  Capping interest rates and fees for all consumers will not only protect working families but also enable our economic recovery.”

In 2006, Congress enacted a federal 36 percent annualized usury cap for certain credit products marketed to servicemembers and their families.  This bill would extend that maximum cap of 36 percent to all consumer credit transactions for all consumers.  The federal cap would not preempt stricter state laws. The bill would also encourage the creation of responsible alternatives to small dollar lending, by allowing initial application fees and for ongoing lender costs such as insufficient funds fees and late fees.  To ensure compliance with the cap, the bill would create specific penalties for violations and supports enforcement in civil courts and by State Attorneys General.

“Throughout my career, I have always worked to shield people from those who would take advantage of them through predatory lending practices that can wreak havoc on people’s lives and perpetuate a cycle of indebtedness.  Both justice and morality dictate that reasonable caps on interest be enacted to protect borrowers from devious lenders,” said Rep. Cohen.

“Despite the economic gains we have made as a nation in recent years, many working families continue to struggle.  For some, payday lenders offer a quick way to make ends meet, but often with devastating consequences,” said Senator Durbin.  “With interest rates of two and three hundred percent of value of the loan, these excessive rates and hidden fees have crippling effects on those who can afford it least.  Capping interest rates and fees for consumers will help protect working families from these predatory lending practices—it’s the right thing to do.”

Supporting Organizations: Center for Economic Integrity, Center for Responsible Lending, Demos, NAACP, and Public Citizen