Sen. Dick Durbin knows that
payday lenders exploit society's most vulnerable. He sees it every time
he's back in his hometown of Springfield. "Within blocks of my home in
Springfield, Illinois, there are payday lenders charging interest rates
of two and three ...
Sen. Dick Durbin knows that payday lenders exploit society’s most vulnerable. He sees it every time he’s back in his hometown of Springfield. “Within blocks of my home in Springfield, Illinois, there are payday lenders charging interest rates of two and three hundred percent of the value of the loan,” the senior senator said in a press release last July. “These excessive rates are often hidden and can have crippling effects on those individuals who can afford it least.”
To give you an idea of how bad things are in Springfield, the city council responded to the glut of predatory lenders by passing an ordinance in January that requires a minimum distance between payday loan stores on MacArthur Boulevard, one of the city’s main thoroughfares.
So it’s no wonder that Durbin is continuing his fight to rein in the industry at the federal level.
Abusive interest rates of as much as 650 percent charged for “payday loans” would be outlawed by a just-introduced bill: capping annual interest rates for consumer credit at 36 percent.
Sponsored by Sen. Dick Durbin (D-Illinois), the Protecting Consumers from Unreasonable Credit Rates Act (S. 500), would impose a federal usury cap of 36 percent Annual Percentage Rate (APR) on all consumer credit transactions. Several states have already enacted similar and even more restrictive interest caps. Durbin’s bill would not affect state laws that impose interest rate caps lower than 36 percent. A 36 percent interest cap law is already in place for U.S. military personnel and their families.
If passed, Illinois is not one of the states where pre-existing usury laws would supersede any new federal mandate. As we explained in our feature last year, the 2005 Payday Loan Reform Act was poorly designed and its loopholes have been thoroughly exploited in the years since. Efforts to reform the bill languished in the House last year—not altogether surprising considering the industry’s willingness to fork over hefty campaign contributions.
With the economy shrinking, payday loans are going to become more enticing to desperate Americans. But just because demand grows doesn’t mean that obtaining consumer credit has to ruin one’s financial future. The Consumers Union sums it up nicely, writing that Durbin’s simple bill “will keep billions of dollars in the hands of low and moderate-income consumers, helping to stimulate the economy without costing taxpayers a penny.”
Image of Springfield loan shops by Flickr user Steve Rhodes.