Every year, millions of Americans turn to payday loans to cover emergency costs or their expenses when they fall behind, but those loans often come with hefty interest rates.
Congress is now considering a proposal to cap the annual percentage rate (APR) at 36 percent for all consumers.
This is already in effect for military members and their families.
Supporters say extending the cap for everyone will help protect consumers who face interest rates in the double or triple digits.
“This is the debt trap and it’s how payday lenders succeed by making sure their customers fail,” said Ashley Harrington with the Center for Responsible Lending.
The “Protecting Consumers from Unreasonable Credit Rates Act” would apply to payday loans, car title loans, credit cards and more.
“Payday lenders don’t offer access to responsible credit that consumers can afford to pay,” said Sen. Sherrod Brown (D-Ohio). “They offer the opposite. Products that trap consumers in a cycle of debt.”
More than a dozen states already have their own interest rate caps.
The legislation to make it a national standard is backed by Democrats and some Republicans.
“While I normally don’t like the federal government regulating business, the fact that so many loans today are online kind of leaves us with no choice,” said Rep. Glenn Grothman (R-Wisc.). “I do think sometimes Americans the least able to afford it lose tremendous amounts in interest.”
But other Republicans argued against the government setting market standards.
“History is littered with government planners and their failed attempts to override markets and set prices,” said Sen. Pat Toomey (R-Penn.).
“They generate huge unintended consequences and inevitably harm the very people they’re supposed to be trying to protect.”
Critics said people in need of the loans would end up losing options under the proposal.
“A national 36 percent interest rate cap would be devastating to my constituents,” said Rep. Barry Loudermilk (R-Georgia). “Many lenders simply would not offer small loans anymore or consumers would be forced to borrow more money than they need or have a longer term loan.”
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