Consumer Car Buying Advice Blog

Senator Dick Durbin of Illinois yesterday introduced a bill that would cap the interest rates on consumer credit at 36 percent.

The informed consumer

Here at Auto Credit Express, we’ve always felt that the informed consumer is our best customer. So in that vein, we would like you to know about a recent piece of legislation that was introduced in the U.S. Senate.

Bill would have huge impact on payday lenders

Following recent legislative action and voter approval of consumer credit interest rate caps in Arizona and Ohio, Dick Durbin, senior senator from Illinois and the Majority Whip of the Senate yesterday introduced S.500, a bill to amend the Truth in Lending Act to establish a national usury rate for consumer credit transactions.

While a summary of the bill is not available at this time, a press release issued by the Center for Responsible Lending indicates that the bill would cap annual interest rates on consumer credit at 36 percent. In the release, CRL president Michael Calhoun had this to say about the bill, “A 36 percent cap on annual interest for consumer credit is a quick, common-sense way to restore protections that have been severely compromised in the consumer credit market. It would cost taxpayers nothing and plug a $5 billion hole in the wallets of working families.”

There are currently 15 states that limit the rates lenders can charge for consumer credit transactions. Among those states is Ohio, which passed a law last summer that placed a 28 percent interest rate cap on consumer loans that was later upheld in a November ballot initiative. The Federal law, if enacted, would also allow states to set stricter standards and allow states that currently have lower interest rate caps to keep them in place.

Current status

In introducing the bill, Senator Durbin had this to say, “In an era that has called for trillions of taxpayer dollars to bail out banks and jumpstart economic demand, this proposal costs the taxpayers nothing. The Protecting Consumers from Unreasonable Credit Rates Act would establish a new Federal annualized fee and interest rate calculation—the FAIR—and institute a 36-percent cap for all types of consumer credit… If a lender can’t make money on 36 percent interest, then maybe the loan shouldn’t be made.”

The bill has been referred to the U.S. Senate Committee on Banking, Housing, and Urban Affairs. The following Senators are on that committee: Christopher J. Dodd Chairman (D-CT), Richard C. Shelby Ranking Member (R-AL), Tim Johnson (D-SD), Robert F. Bennett (R-UT), Jack Reed (D-RI), Jim Bunning (R-KY), Charles E. Schumer (D-NY), Mike Crapo (R-ID), Evan Bayh (D-IN), Mel Martinez (R-FL), Robert Menendez (D-NJ), Bob Corker (R-TN), Daniel K. Akaka (D-HI), Jim DeMint (R-SC), Sherrod Brown (D-OH), David Vitter (R-LA), Jon Tester (D-MT), Mike Johanns (R-NE), Herb Kohl (D-WI), Kay Bailey Hutchison (R-TX), Mark Warner (D-VA), Jeff Merkley (D-OR), and Michael Bennet (D-CO).

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