Senator Richard Durbin just introduced S 500 called the “Protecting Consumers from Unreasonable Credit Rates Act of 2009″. The bill would limit consumer credit rates to a cost of no more than 36% annual interest. This would include any fees and other charges.
Senator Durbin, an Illinois democrat and assistant majority leader, is a friend of consumers and the sponsor of the “Helping Families Save Their Homes In Bankruptcy Act of 2009“. While there is no doubt this would be a considerable improvement over rates allowed in some states, it is a sad state of affairs when 36% is considered reasonable.
I applaud Senator Durbin’s bold action since I have had clients tell me about car title and paycheck loans with terms that made my hair curl. One of my clients borrowed $500 on a 30 day loan against the family car. He was required by the terms of the loan to pay interest of $50 each week until the balance was paid in full. When he was unable to pay the full balance after 30 days, he was charged an additional $25 as a loan fee to extend for another 30 days plus the the weekly $50 interest that was due. That worked out to $2,900 per year in charges for the loan. By my calculation that works out to about 580% interest.
According to findings incorporated in the bill,
“15 states and the District of Columbia have enacted broadly applicable usury laws that protect borrowers from high-cost payday loans and many other forms of credit, while 34 states and the District of Columbia have limited annual interest rates to 36 percent or less for 1 or more types of consumer credit..”
The text goes on to recite how the lack of a Federal usury limitation results in enormous costs to consumers around the country,
“…due to the lack of a comprehensive Federal usury cap, consumers annually pay approximately $17,500,000,000 for high-cost overdraft loans, as much as $8,600,000,000 for storefront and online payday loans, and nearly $900,000,000 for tax refund anticipation loans…”
The bill had no co-sponsors when filed. I am sure that other Senators will join Senator Durbin in support of this measure. Obviously, this is a problem that calls out for a solution. Please encourage Senators from your state to co-sponsor the bill.
