WASHINGTON (WAND) - A bill to protect consumers who borrow with consumer loans has been introduced by U.S. Senate Majority Whip Dick Durbin (D-IL) and other lawmakers. 

The bill, known as the Protecting Consumers from Unreasonable Credit Rates Act, would cap fees and interest on consumer loans at an Annual Percentage Rate (APR) of 36 percent. This is the same limit that currently exists for loans marketed to military service members and families. 

Lenders offer easy credit, but transactions often involve "high interest rates, steep late fees and other hidden charges", lawmakers said in a press release. They called this practice a "predatory business model" that "exploits hard-working Americans, trapping them in long-term debt cycles that drain bank accounts and cause serious, long-term financial harm".

"In 2006, Congress enacted a federal 36 percent annualized usury cap for certain credit products marketed to service members and their families, which curbed payday, car title, and tax refund lending around military bases," the release said. "Eighteen states, including Illinois, and the District of Columbia have enacted usury laws that protect borrowers from high-cost payday loans and other costly forms of credit.

"Various federal and state loopholes allow unscrupulous lenders to charge cash-strapped consumers 400 percent APR for payday loans on average, 300 percent APR for car title loans, and up to 17,000 percent APR for bank overdraft loans." 

The bill would take the following actions:

  • Establish a maximum APR equal to 36 percent and apply this cap to all open-end and closed-end consumer credit transactions, including payday loans, car title loans, overdraft loans, credit cards, car loans, mortgages, and refund anticipation loans;
  • Encourage the creation of responsible alternatives to small dollar lending by providing tolerances for initial application fees and ongoing lender costs;
  • Ensure that this federal law does not preempt stricter state laws; and
  • Create specific penalties for violations of the new cap and support enforcement in civil courts and by State Attorneys General.

“It is time for federal legislation that cracks down on predatory lending and closes loopholes used to exploit hard-working Americans," Durbin said in a statement. "The Protecting Consumers from Unreasonable Credit Rates Act would eliminate high-cost payday loans and other costly forms of credit that trap vulnerable consumers in endless debt cycles. Too many Americans suffer long-term financial harm from these predatory loans and deceptive tactics, and we must put an end to it."