WASHINGTON, DC – U.S. Senator Jack Reed (D-RI), Chairman of the Senate Armed Services Committee and a senior member of the Banking and Housing Committee, today joined Senators Jeff Merkley (D-OR), Sherrod Brown (D-OH), Chairman of the Senate Banking and Housing Committee, and others in introducing the Predatory Lending Elimination Act (S. 3549). This legislation would extend the protections of the Military Lending Act (MLA), which caps the effective interest rate on consumer loans (including fees) at 36 percent, to cover veterans and all other consumers.
Under the Predatory Lending Elimination Act, the MLA’s 36 percent interest rate cap on most consumer loans and its current rules would be extended to all consumers, including veterans and Gold Star families.
In 2006, Congress passed the bipartisan 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 exploitative lending practices and products.
“While servicemembers are protected by the MLA, predatory lenders, particularly payday lenders, continue to target vulnerable Americans with abusive loans that can reach APRs as high as 664 percent, trapping individuals in cycles of debt. The MLA’s success demonstrates a feasible framework that protects consumers while preserving access to credit,” said Senator Reed. “Our servicemembers and their families should not lose important consumer protections simply because they retire, separate from honorable service, or lose their loved ones. Frankly, no American should be subject to such exorbitant interest rates. As such, our legislation would extend the MLA’s protections to veterans and Gold Star families as well as ensure that all Americans are shielded from predatory loans.”
“Predatory loans with outrageous interest rates trap working Americans—including veterans and their families—in a vortex of debt,” said Senator Merkley. “This bill is a critical step forward and would ensure all consumers—including veterans and their families—aren’t bankrupted by high interest rates.”
“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 Senator 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.”
Hundreds of millions of American consumers could benefit from a 36 percent APR cap. In states that do not have such a cap, predatory lenders are permitted to offer loans with triple-digit APRs that trap individuals in cycles of debt. For instance, the Consumer Financial Protection Bureau found that 80 percent of payday loans are rolled over or renewed within two weeks. In addition to high interest, this practice can saddle consumers with additional fees that are greater than the amount of money they originally borrowed – a hallmark of predatory lending and poor underwriting.
The MLA’s successful track record in protecting servicemembers demonstrates that providing for reasonable, responsible limits on interest rates does not cut off consumers’ access to credit. According to a May 2021 report from the Department of Defense, “credit cards, auto loans, and personal loans are widely available at risk-based rates under the 36 percent [military] APR” and “[s]ervice members continue to have ample access to necessary credit.” At a January 2022 hearing in the Banking Committee, a nonbank lender from South Dakota – a state which has enacted a 36 percent usury limit on small-dollar loans – told committee members that consumers there “have successfully been able to access other products to meet that short-term cash need within the household. And it has helped us to have that capped interest rate, which has not hurt families.”
Reed notes this legislation would follow the trend in many states towards greater protections against predatory loans. Nineteen states and the District of Columbia have enacted 36 percent APR caps or banned payday loans. Lenders in these states have incentives to offer more affordable loans that borrowers have an ability to repay. The same incentives should apply across the nation.
The Predatory Lending Elimination Act has been endorsed by a wide variety of over 170 consumer, civil rights, veterans, servicemember organizations, and advocates, including: Consumer Federation of America, National Consumer Law Center (on behalf of its low-income clients), Center for Responsible Lending, NAACP, Public Citizen, National Fair Housing Alliance, National Community Reinvestment Coalition, the Military Officers Association of America, the Evangelical Lutheran Church, and Amalgamated Bank.
In addition to Reed, Merkley, and Brown, the bill is cosponsored by U.S. Senators: Tina Smith (D-MN), Richard Blumenthal (D-CT), Debbie Stabenow (D-MI), Raphael Warnock (D-GA), Sheldon Whitehouse (D-RI), Brian Schatz (D-HI), Ron Wyden (D-OR), Ben Ray Luján (D-NM), Cory Booker (D-NJ), John Fetterman (D-PA), Peter Welch (D-VT), Alex Padilla (D-CA), and Laphonza Butler (D-CA).
A companion bill is being introduced in the U.S. House of Representatives by Congressmen Jesús “Chuy” García (IL-04).
