July 28, 2021

U.S. Senators Seek to Cap Consumer Loans at 36%

To stop predatory lenders from preying on the most financially vulnerable, bill would extend critical financial protections for servicemembers to all consumers

In an effort to put a stop to abusive and predatory lending practices that target vulnerable consumers, U.S. Senators Jack Reed (D-RI), Jeff Merkley (D-OR), Sherrod Brown (D-OH), and Chris Van Hollen (D-MD), today led the reintroduction of legislation that would extend the protections of the Military Lending Act (MLA), which caps the annual percentage rate (APR) on consumer loans at 36 percent, to cover veterans and other consumers.

In 2006, Congress passed the MLA to rein in predatory payday lenders and other loan product providers who used abusive lending practices to target and lure American troops into debt traps.  However, the legislation left veterans, Gold Star families, and other Americans vulnerable to those lending practices and products.

To date, 18 states and the District of Columbia have enacted interest rate caps that prevent payday loans.  But the Senators say federal action is required to protect consumers nationwide from the financial harm of high-cost, exploitative lending products.

In addition to Reed, Merkley, Brown, and Van Hollen, the bill is also cosponsored by U.S. Senators Tina Smith (D-MN), Cory Booker (D-NJ), Richard Blumenthal (D-CT), Brian Schatz (D-HI), Dianne Feinstein (D-CA), Raphael Warnock (D-GA), Patrick Leahy (D-VT), and Ron Wyden (D-WA).  

“The Military Lending Act has been a bipartisan success, and predatory lenders should not be given more targets just because servicemembers and their families retire, separate from honorable service, or lose their loved ones,” said Reed.  “The Veterans and Consumers Fair Credit Act not only restores these Military Lending Act protections for Veterans and Gold Star families, but also ensures that all Americans are protected from financial exploitation.  There is no reason consumers should be charged a 300 percent APR to access credit.  These types of predatory loans trap individuals in cycles of debt, adding crushing financial burdens onto the backs of those who can least afford it.  Our bill would ensure consumers are treated fairly and prevent people from being overburdened by shady lending practices.” 

“Predatory payday practices that lure servicemembers, veterans, Gold Star families, or any hardworking individual into vortexes of debt through high-interest loans are dangerous, amoral, and should be illegal,” said Merkley. “The passage of the Military Lending Act made an enormous difference for active duty members of the military by outlawing these risky loans, and veterans and other consumers deserve the same protections. We can’t sit idly by while abusive payday lenders continue to inflict financial ruin on working Americans.”

“Payday, car title, and other shady loan practices target Ohio’s military families, veterans, and vulnerable consumers with high-interest, predatory loans that are designed to trap them in a cycle of debt. Many Americans have to renew their loans so many times they end up paying more in fees than the amount they borrowed,” said Brown. “We can put an end to these abusive debt traps by extending the Military Lending Act’s 36 percent cap on interest rates to veterans, surviving family members, and all consumers.”

“Far too many Americans are cheated out of their hard-earned dollars by predatory payday lenders that go after our nation’s consumers – including the men and women who have fought and sacrificed so much for our country. This legislation will help prevent those practices and protect our veterans and other consumers by building on the success of the Military Lending Act. I urge the Senate to move forward on this common-sense bill immediately,” said Van Hollen.

“This important legislation is needed now more than ever as consumers across the country try to recover from the financial ruin caused by the COVID-19 pandemic,” said Rachel Gittleman, Financial Services Outreach Manager with the Consumer Federation of America. “We applaud Senator Jack Reed, Senator Jeff Merkley, and Chairman Sherrod Brown for stepping up to ensure that consumers are protected from these predatory, high cost lenders that thrive on the unaffordable debt trap created by the borrower’s inability to repay and continual reborrowing.”

Under the Veterans and Consumers Fair Credit Act, the Military Lending Act’s 36 percent APR cap on most consumer loans and its current rules would be extended to all consumers, including veterans and Gold Star families. The Veterans and Consumers Fair Credit Act also confirms the Consumer Financial Production Bureau’s (CFPB) authority to conduct supervisory examinations to ensure that lenders are complying with the MLA’s 36 percent APR cap for servicemembers, veterans, and all Americans.  CFPB, which had stopped supervising for MLA compliance in 2018, recently announced it was restarting these examinations.

The legislation has been endorsed by a wide variety of consumer, civil rights, veterans, servicemember organizations, and advocates, including: Consumer Federation of America; Military Officers Association of America; National Military Families Association; Veterans Education Success; Americans for Financial Reform; Center for Responsible Lending; Consumer Action; NAACP; National Consumer Law Center (on behalf of its low-income clients); and Hollister Petraeus and Colonel Paul E. Kantwill, USA (Ret), the former Assistant Directors, Consumer Financial Protection Bureau, Office of Servicemember Affairs.

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