Every year, millions of Americans turn to payday loans to cover emergency costs or their expenses in the event of a delay, but these loans often come with high interest rates.
Congress is currently considering a proposal to cap the Annual Percentage Rate (APR) at 36% for all consumers.
It is already in effect for military personnel and their families.
Supporters say extending the cap to everyone will help protect consumers facing double or triple-digit interest rates.
“This is the debt trap and this is how payday lenders succeed in making sure their clients fail,” said Ashley Harrington of the Center for Responsible Lending.
The “Law on the Protection of Consumers against Unreasonable Credit Rates” would apply to payday loans, car title loans, credit cards and more.
“Payday lenders do not provide access to responsible credit that consumers can afford to pay,” said Sen. Sherrod Brown (D-Ohio). “They suggest the opposite. Products that trap consumers in a cycle of debt.
More than a dozen states already have their own interest rate caps.
Legislation to make it a national standard is supported 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 doesn’t give us a choice,” Rep. Glenn Grothman (R-Wisc.) Said. “I think sometimes Americans less able to afford it lose huge sums of interest.”
But other Republicans opposed the government setting market standards.
“History is littered with government planners and their failed attempts to bypass markets and fix prices,” said Sen. Pat Toomey (R-Penn.).
“They generate huge unintended consequences and inevitably harm the very people they are meant to be trying to protect.”
Critics said people in need of loans would end up losing options under the proposal.
“A national interest rate cap of 36% would be devastating for my constituents,” said Representative Barry Loudermilk (R-Georgia). “Many lenders would simply no longer offer small loans or consumers would be forced to borrow more money than they need or have a longer term loan.”
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