Congresswoman Jackie Speier introduced two bills to rein in out-of-control consumer credit interest rates.  HR 1608 – the Protecting Consumers from Unreasonable Credit Rates Act would establish a national usury rate, while HR 1610 – the Interest Rate Equity Act (IRE Act) would cap credit card interest rates from institutions receiving taxpayer money at 18%.

“These two bills insert some sanity and basic fairness into what is currently a very unfair system,” Rep. Speier said.  “The usury law, in particular, will go a long way toward reining in the unfair fees, penalties and extraneous charges that financial institutions inflict on consumers.”

Fifteen states and the District of Columbia have usury laws that protect consumers from predatory lending practices like “payday” and “car title” loans that frequently charge annualized interest rates of 300-400% and more.  In addition, thirty-four states have set a 36% interest rate cap for one or more types of consumer credit.  Most of these laws however, exempt banks and where they don’t, financial institutions have been able to skirt state restrictions by basing their operations in a state with lax (or no) regulations and apply those laws to customers nationwide.

In 2006, Congress passed legislation that set a 36% interest cap on payday and other non-bank lenders operating in the vicinity of military bases.  This bill will set a national 36% usury rate that ALL lenders must adhere to.  It also will limit the “phantom interest” that can dramatically increase the cost of credit to the consumer through fees, overdraft charges and other penalties.  These charges will now have to be included into the interest rate calculation, and the total will be subject to the 36% APR usury limit.

The bill is similar to one introduced in the United States Senate by Illinois Senator Richard Durbin.

The IRE Act addresses credit cards issued by companies receiving TARP (Troubled Assets Relief Program) funds.  It sets a maximum interest rate for those cards at 18%.

 “At a time when consumers are losing their jobs, homes and retirement nest eggs, the financial services industry has responded by hitting them with arbitrary and outrageous fees and rate increases.”  Speier said.  “Usury and predatory lending is wrong, plain and simple.”
 
“By forcing banks to count fees and other charges into the 36% maximum rate, the usury legislation that Senator Durbin and I are proposing will give consumers a clear, accurate and proper accounting of what they are really paying for their credit.  Currently, consumers pay as much as 3500% annual interest for bank overdrafts and from 50% to 500% for tax refund anticipation loans.  Despite industry claims to the contrary, 36% provides ample room for lenders to provide credit and turn an appropriate and respectable profit,” the congresswoman said.   

HR 1608 is supported by a coalition of more than 100 consumer, community, labor and senior organizations, including Consumers Union, the Consumer Federation of America, the National Association of Consumer Advocates, the National Fair Housing Alliance, and the NAACP. 

In a letter released by the coalition, the groups wrote:  “By limiting the total cost of consumer credit to 36 percent, Congress will keep billions of dollars in the hands of low and moderate-income consumers, helping to stimulate the economy without costing taxpayers a penny.”